Skip to main content

An examination of conditional effect on cross-sectional returns: Singapore evidence

Buy Article:

$47.50 plus tax (Refund Policy)

This article empirically examines the usefulness of beta, firm size, book-to-market equity ratio (B/M) and earnings-to-price ratio (E/P), as risk proxies in explaining the cross-sectional returns in the Singapore stock market under both unconditional and conditional frameworks based on up and down markets. Consistent with previous studies, though beta plays no role under unconditional framework, there is evidence of a significantly positive (negative) risk premium on beta during periods of up (down) markets, supporting for the continuous use of beta as a risk measure. Interestingly, our results show that firm size is the only significant variable in explaining average returns under the unconditional framework but its impact becomes much less under the up and down market conditions. However, significant conditional effect of E/P is found. Although, B/M alone is not significantly conditionally related to returns, in various combinations with beta, it becomes significant and the joint role of beta and B/M, due to an interaction effect between them, has an 'amplified' gain in the explanatory power. Our study suggests that beta does not suffice to explain the cross-sectional variations of returns, but it is possible that the joint effect of beta and B/M may be a surrogate as an underlying and more fundamental factor that is missing in the conditional SLB model. We also find evidence that investors in the Singapore stock market react virtually the same to these firm-specific factors and to beta during up and down markets. Our results are robust for both beta-size and size-beta sorting procedures and for both value- and equally weighted market proxies.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
No Metrics

Document Type: Research Article

Affiliations: 1: Faculty of Business Administration, University of Macau, Taipa, Macau, China 2: Department of Finance and Decision Sciences, Hong Kong Baptist University, Kowloon, Hong Kong, China

Publication date: 2010-03-01

More about this publication?
  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more