Explaining Equity Anomalies in Frontier Markets: A Horserace of Factor Pricing Models

Adam Zaremba (), Alina Maydybura, Anna Czapkiewicz and Marina Arnaut

Emerging Markets Finance and Trade, 2021, vol. 57, issue 13, 3604-3633

Abstract: We are the first to compare the explanatory power of the major empirical asset pricing models over equity anomalies in the frontier markets. We replicate over 160 stock market anomalies in 23 frontier countries for years 1996–2017 and evaluate their performance with the factor models. The Carhart’s four-factor model outperforms both the recent Fama and French five-factor model and the q-model by Hou, Xue, and Zhan. Its superiority is driven by the ability to explain the momentum-related anomalies. Inclusion of additional profitability and investment factors lead to no further major improvement in the performance. Nonetheless, none of the models is able to fully explain the abnormal returns on all of the anomaly portfolios.

Date: 2021
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DOI: 10.1080/1540496X.2019.1612361

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