Factor Models Under Firm Characteristics in Emerging Markets: A Study of Taiwan Stock Returns

22 Pages Posted: 19 Jul 2000

See all articles by Anlin Chen

Anlin Chen

National Sun Yat-sen University - Department of Business Management

Eva Tu

PriceWaterhouseCoopers LLP

Date Written: February 2000

Abstract

Fama and French (1993) propose a three-factor model to describe the stock return behavior. However, it is challenged that stock returns are determined by firm characteristics rather than certain common factors. We are curious if a factor-based model with more factors can mitigate the effects of firm characteristics on stock returns. Our results show that the factor-based models are significant but not sufficient for the stock returns in Taiwan. Size or book-to-market ratio alone cannot influence the stock returns under a factor-based model. However, size along with book-to-market is significant under a factor-based model. Furthermore, the risk characteristics are more influential than the factor loading in the behaviors of stock returns. We conclude that either factor-based models or firm characteristics alone cannot fully explain the stock return behaviors in Taiwan Stock Exchange. Employing only factor-based model or only risk characteristics will lose some important contents in the stock returns.

Keywords: Stock returns, common factors, firm characteristics, Fama-French model, momentum strategy, trading volume strategy

JEL Classification: G11, G12

Suggested Citation

Chen, Anlin and Tu, Eva, Factor Models Under Firm Characteristics in Emerging Markets: A Study of Taiwan Stock Returns (February 2000). Available at SSRN: https://ssrn.com/abstract=213320 or http://dx.doi.org/10.2139/ssrn.213320

Anlin Chen (Contact Author)

National Sun Yat-sen University - Department of Business Management ( email )

Kaohsiung 80424
Taiwan
886-7-5252000x4656 (Phone)
886-7-5254698 (Fax)

Eva Tu

PriceWaterhouseCoopers LLP ( email )

1301 Avenue of the Americas
New York, NY 10019
United States

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