Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

Open access

Abstract

This paper tests the performance of the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor and Carhart four-factor models on the Polish market. We use stock level data from April 2001 to January 2014 and find strong evidence for value and momentum effects, but only weak evidence for size premium. We formed portfolios double-sorted on size and book-to-market ratios, as well as on size and momentum, and we explain their returns with the above-mentioned asset pricing models. The CAPM is rejected and the three-factor and four-factor models perform well for the size and B/M sorted portfolios, but fail to explain returns on the size and momentum sorted portfolios. With the exception of the momentum factor, local Polish factors are not correlated with their European and global counterparts, suggesting market segmentation. Finally, the international value, size and momentum factors perform poorly in explaining cross-sectional variation in stock returns on the Polish market.

Asness, C. S. (1994), Variables that explain stock returns, Ph. D. Dissertation, University of Chicago.

Asness, C. S., Moskowitz, T. J., Pedersen, L. H (2013), Value and momentum everywhere, The Journal of Finance, Vol. 68, No. 3, pp. 929–989.

Asness, C. S., Frazzini, A., Israel, R., Moskowitz, T. J., Pedersen, L. H. (2015), Size matters, if you control your junk, Fama-Miller Working Paper.

Banz, R. W. (1981), The relation between return and market value of common stocks, Journal of Financial Economics, Vol. 9, pp. 3–18.

Basu, S. (1975), The information content of price-earnings ratios, Financial Management, Vol. 4, No. 2, pp. 53–64.

Basu, S. (1977), Investment performance of common stocks in relation to their price-earnings ratios: a test of the efficient market hypothesis, The Journal of Finance, Vol. 32, No. 3, pp. 663–682.

Basu, S. (1983), The relationship between earnings’ yield, market value and return for NYSE common stocks: further evidence, Journal of Financial Economics, Vol. 12, No. 1, pp. 129–156.

Bello, Z. (2007), How diversified are equity mutual funds, North American the Journal of Finance and Banking Research, No. 1 (1), pp. 54–63.

Blume, M. E., Stambaugh, R. F. (1983), Biases in computed returns: an application to the size effect, Journal of Financial Economics, Vol. 13, No. 3, pp. 387–404.

Borys, M. M., Zemcik, P. (2009), Size and value effects in the Visegrad Countries, Emerging Markets Finance and Trade, Vol. 47, No. 3, pp. 50–68.

Brown, P., Keim, D. B., Kleidon, A. W., Marsh, T. A. (1983), Stock return seasonalities and the tax-loss selling hypothesis: analysis of the arguments and Australian evidence, Journal of Financial Economics, Vol. 12, pp. 105–128.

Cakici, N., Fabozzi, F. J., Tan, S. (2013), Size, value and momentum in emerging market stock returns, Emerging Markets Review, Vol. 16, pp. 46–65.

Capaul, C., Rowley, I., Sharpe, W. (1993), International value and growth stock returns, Financial Analysts Journal, Vol. 49, pp. 27–36.

Carhart, M. M. (1997), On persistence in mutual fund performance, Journal of Finance, Vol. 52, pp. 57–82.

Chan, L. K. C., Hamao, Y., Lakonishok, J. (1991), Fundamentals and stock returns in Japan, Journal of Finance, Vol. 46, pp. 1739–1764.

Chui, A. C. W., Titman, S., Wei, K. C. J. (2010), Individualism and momentum around the world, Journal of Finance, Vol. 65, pp. 361–392.

Clarke, R. G., de Silva, H., Thorley, S. (2017), Pure factor portfolios and multivariate regression analysis, Journal of Portfolio Management.

Cochrane, J. H. (2005), Asset pricing, Princeton University Press, Princeton.

Czapkiewicz, A., Skalna, I. (2010), The Fama-French model for the Polish market, Ekonomia Menedżerska, No. 7, pp. 121–129.

Daniel, K., Titman, S. (1997), Evidence on the characteristics of cross sectional variation in stock returns, The Journal of Finance, Vol. 52, No. 1, pp. 1–33.

Davis, J. L. (1994), The cross-section of realized stock returns: the pre-COMPUSTAT evidence, Journal of Finance, Vol. 49, pp. 1579–1593.

Davis, J. L., Fama, E. F., French, K. R. (2000), Characteristics, covariances, and average returns: 1929 to 1997, The Journal of Finance, Vol. 55, No. 1, pp. 389–406.

De Groot, W., Pang, J., Swinkels, L. A. P. (2012), The cross-section of stock returns in frontier emerging markets, Journal of Empirical Finance, Vol. 19, No. 5, pp. 796–818.

Dhatt, M. S., Kim, Y. H., Mukherji, S. (1999), The value premium for small-capitalization stocks, Financial Analysts Journal, Vol. 55, No. 5, pp. 60–68.

Dijk van, M. A. (2011), Is size dead? A review of size effect in equity returns, Journal of Banking & Finance, Vol. 35, No. 12, pp. 3263–3274.

Fama, E. F., French, K. R. (1992), The cross-section of expected stock returns, Journal of Finance, Vol. 47, pp. 427–466.

Fama, E. F., French, K. R. (1993a), Common risk factors in the returns on stocks and bonds, Journal of Financial Economics, Vol. 33, pp. 3–56.

Fama, E. F., French, K. R. (1993b), Size and book-to-market factors in earnings and returns, Journal of Finance, Vol. 50, pp. 131–156.

Fama, E. F., French, K. R. (1996), Multifactor explanations of asset pricing anomalies, Journal of Finance, Vol. 51, pp. 55–84.

Fama, E. F., French, K. R. (1998), Value versus growth: the international evidence, Journal of Finance, Vol. 53, pp. 1975–1999.

Fama, E. F., French, K. R. (2006), The value premium and the CAPM, Journal of Finance, Vol. 61, pp. 2163–2186.

Fama, E. F., French, K. R. (2008), Dissecting anomalies, Journal of Finance, Vol. 63, No. 4, pp. 1653–1678.

Fama, E. F., French, K. R. (2010), Luck versus skill in the cross-section of mutual fund returns, Journal of Finance, Vol. 65, pp. 1915–1947.

Fama, E. F., French, K. R. (2012), Size, value, and momentum in international stock returns, Journal of Financial Economics, Vol. 105, No. 3, pp. 457–472.

Fama, E. F., French, K. R. (2013), A five-factor asset pricing model, Journal of Financial Economics, Vol. 116, No. 1, pp. 1–22.

Gibbons, M. R., Ross, S. A., Shanken, J. (1989), A test of the efficiency of a given portfolio, Econometrica, Vol. 57, pp. 1121–1152.

Griffin, J. M. (2002), Are the Fama and French factors global or country specific?, Review of Financial Studies, Vol. 15, pp. 783–803.

Grinblatt, M., Moskowitz, T. J. (2004), Predicting stock price movements from past returns: the role of consistency and tax-loss selling, Journal of Financial Economics, Vol. 71, pp. 541–579.

Hearn, B. (2016), A comparison of the efficacy of liquidity, momentum, size and book-to-market value factors in equity pricing on a heterogeneous sample: evidence from Asia, Financial Markets, Institutions & Instruments, Vol. 25, No. 4, pp. 253–330.

Herrera, M. J., Lockwood, L. J. (1994), The size effect in the Mexican stock market, Journal of Banking and Finance, Vol. 18, pp. 621–632.

Heston, S. L., Rouwenhorst, K. G., Weessels, R. E. (1999), The role of beta and size in the cross-section of European stock returns, European Financial Management, Vol. 5, pp. 9–27.

Hong, H., Stein, J., Lim, T. (2000), Bad news travels slowly: size, analyst coverage and the profitability of momentum strategies, Journal of Finance, Vol. 58, pp. 2515–2547.

Hou, K., Karolyi, G. A., Kho, B. C. (2011), What factors drive global stock returns?, Review of Financial Studies, Vol. 24, No. 8, pp. 2527–2574.

Jegadeesh, N. (2000), Long-term performance of seasoned equity offerings: benchmark errors and biases in expectations, Financial Management, Vol. 29 (3), pp. 5–30.

Jegadeesh, N., Titman, S. (1993), Returns to buying winners and selling losers: implications for stock market efficiency, The Journal of Finance, Vol. 48, No. 1, pp. 65–91.

Jegadeesh, N., Titman, S. (2001), Profitability of momentum strategies: an evaluation of alternative explanations, The Journal of Finance, Vol. 56, No. 2, pp. 699–720.

Karolyi, G. A., Stulz, R. M. (2003), Are assets priced globally or locally?, in: G. M. Constantinides, M. Harris, R. Stulz (Eds.), Handbook of the economics of finance, Elsevier Science, pp. 973–1018.

Kim, D., Kim, M. (2003), A multifactor explanation of post-earnings announcement drift, Journal of Financial Quantitative Analysis, Vol. 38 (2), pp. 383–398.

Kosowski, R., Timmermann, A., Wermers, R., White, H. (2006), Can mutual fund “stars” really pick stocks? New evidence from a bootstrap analysis, Journal of Finance, Vol. 61, pp. 2551–2595.

Kothari, S. P., Shanken, J., Sloan, R. G. (1995), Another look at the cross-section of expected stock returns, Journal of Finance, Vol. 50, pp. 185–224.

Kowerski, M. (2008), The Fama and French tree-factor model for Warsaw Stock Exchange (Trójczynnikowy model Famy i Frencha dla Giełdy Papierów Wartościowych w Warszawie), Przegląd Statystyczny, No. 55 (4), pp. 131–148.

Lam, K. S. F., Li, K., So, S. M. (2009), On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong stock market, Review of Quantitative Finance and Accounting, Vol. 35, No. 1, pp. 89–111.

Liew, J., Vassalou, M. (2000), Can book-to-market, size and momentum be risk factors that predict economic growth?, Journal of Financial Economics, Vol. 57, No. 2, pp. 221–245.

Lintner, J. (1965), The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets, Review of Economics and Statistics, Vol. 47, pp. 13–37.

Lischewski, J., Voronkova, S. (2012), Size, value and liquidity. Do they really matter on an emerging stock market?, Emerging Markets Review, Vol. 13, No. 1, pp. 8–25.

Loughran, T. (1997), Book-to-market across firm size, exchange, and seasonality: is there an effect?, Journal of Financial and Quantitative Analysis, Vol. 32, pp. 249–268.

L’Her, J. F., Masmoudi, T., Suret, J. M. (2004), Evidence to support the four-factor pricing model from the Canadian Stock Market, Journal of International Financial Markets, Institutions and Money, Vol. 14, pp. 313–328.

Michou, M., Mouselli, S., Stark, A. (2010), Fundamental analysis and the modelling of normal returns in the UK, working paper, SSRN.

Mossin, J. (1966), Equilibrium in a capital asset market, Econometrica, Vol. 34, pp. 768–783.

Olbryś, J. (2010), Three-factor market-timing models with Fama and French spread variables, Operations Research and Decisions, No. 2, pp. 91–106.

Reinganum, M. R. (1981), Misspecification of capital asset pricing: empirical anomalies based on earning’ yield and market values, Journal of Financial Economics, Vol. 9, No. 1, pp. 19–46.

Rosenberg, B., Reid, K., Lanstein, R. (1985), Persuasive evidence of market inefficiency, Journal of Portfolio Management, Vol. 11, pp. 9–17.

Rouwenhorst, K. G. (1999), Local returns factors and turnover in emerging stock markets, Journal of Finance, Vol. 54, pp. 1439–1464.

Sekuła, P. (2013), Szacowanie efektu wielkości spółki na GPW w Warszawie, Zeszyty Naukowe Uniwersytetu Szczecińskiego, Finanse, Rynki Finansowe, Ubezpieczenia, No. 60, pp. 105–114.

Sharpe, W. F. (1964), Capital asset prices: a theory of market equilibrium under conditions of risk, Journal of Finance, Vol. 19, pp. 425–442.

Sharpe, W. F. (1966), Mutual fund performance, Journal of Business, Vol. 39, pp. 119–138.

Stattman, D. (1980), Book values and stock returns, Journal of Selected Papers, Vol. 4, pp. 25–45.

Szyszka, A. (2006), Momentum at the Warsaw Stock Exchange, Bank i Kredyt, No. 8, pp. 37–49.

Urbański, S. (2012), Multifactor explanations of returns on the Warsaw Stock Exchange in light of the ICAPM, Economic Systems, Vol. 36, No. 4, pp. 552–570.

Waszczuk, A. (2013a), A risk-based explanation of return patterns – evidence from the Polish stock market, Emerging Markets Review, Vol. 15, pp. 186–210.

Waszczuk, A. (2013b), Do local or global risk factors explain the size, value and momentum trading payoffs on the Warsaw Stock Exchange?, Applied Financial Economics, Vol. 23, pp. 1497–1508.

Welc, J. (2012), Company-size effect on the Polish stock market, Global Review of Accounting and Finance, Vol. 3, No. 1, pp. 53–66.

Zaremba, A., Konieczka, P. (2014), Factor returns in the Polish equity market, Procedia – Social and Behavioral Sciences, Vol. 1100, pp. 1073–1081.

Zaremba, A., Konieczka, P. (2015a), Are value, size and momentum premiums in CEE emerging markets only illusionary?, Czech Journal of Economics and Finance, Vol. 65, No. 1, pp. 84–104

Zaremba, A., Konieczka, P. (2015b), Paper profits from value, size and momentum: evidence from the Polish market, Financial Internet Quarterly “e-Finanse”, Vol. 11, No. 3, pp. 58–69.

Żebrowska-Suchodolska, D., Witkowska, D. (2008), Momentum and winner-loser strategies: evidence for the Warsaw Stock Exchange, Metody Ilościowe w Badaniach Ekonomicznych, Vol. X, pp. 1–10.

Journal Information

Metrics

All Time Past Year Past 30 Days
Abstract Views 0 0 0
Full Text Views 131 131 33
PDF Downloads 35 35 17