Predicting Equity Returns in Emerging Markets

Yigit Atilgan, K. Ozgur Demirtas and A. Doruk Gunaydin

Emerging Markets Finance and Trade, 2021, vol. 57, issue 13, 3721-3738

Abstract: This study investigates the relation between firm-specific attributes and future equity returns in 23 emerging markets. Equal-weighted portfolio returns reveal strong evidence of short-term momentum (rather than reversal) and medium-term return momentum. We also find evidence that market beta, book-to-market ratio and downside risk metrics predict equity returns, however, these relations get weaker once value-weighting is used. In univariate regressions, smaller firms with higher idiosyncratic volatility, lottery-like characteristics and stock-specific downside risk are associated with higher future returns, however, these relations disappear in a multivariate setting. We conclude that the most robust cross-sectional effects are short- and medium-term return momentum.

Date: 2021
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DOI: 10.1080/1540496X.2020.1822808

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