Uniform testing and portfolio strategies for single and multifactor asset pricing models in the Pacific Basin markets
Abstract:We test and implement portfolio strategies for three major asset pricing models, under uniform diagnostic measures using the PACAP data set containing all current listing and de-listing of firms for the local stock exchange in several Pacific Basin countries. Compared to the often used MSCI database that include only a subset of the (large) firms in the local markets, the more complete coverage of our database allows for more robust testing of current multifactor asset pricing models since the possible effects of additional factors such as size and book to market may not show up correctly using less comprehensive data sets. Our data set also provides a natural packet of nonUS data for addressing the issue of whether the results of recent asset pricing research are sample specific. Our overall results provide multi-country (sample nonspecific) support for the additional asset pricing risk factors of the Fama-French three-factor model but not for the momentum factor of the Carhart model. We additionally find that the size risk factor is more prominent than value risk factor in the Pacific Basin markets. Finally, we find strong evidence that portfolio strategies implemented to capture value and size effects are profitable in the Pacific Basin stock markets.
Document Type: Research Article
Affiliations: 1: Department of Finance, National Chung Cheng University, Taiwan, R.O.C 2: Department of Finance, National Chung Cheng University, Taiwan, R.O.C,Department of Finance, Chaoyang University of Technology, Taiwan
Publication date: June 1, 2009