Stock return anomalies in the Korean stock market: Investigating the effects of certain non-beta variables on the stock returns.

摘要

The cross-sectional relationship between stock returns and non-beta variables has attracted a considerable amount of attention in the U.S. and Japan. The lack of evidence for emerging capital markets was the catalyst for this study. The opening of the Korean stock market to foreign investors in 1992 further underscored the urgent need for the investigation of stock return anomalies in emerging capital markets. This study examines the relationship between monthly stock returns and the E/P (earnings to price), and B/M (book to market) ratios, size, and share price for the stocks listed on the Korea Stock Exchange (KSE).;In contrast to previous studies, this sample includes both non-financial and financial firms, as well as delisted stocks. Both the SUR and Fama and MacBeth (1973) methodologies are applied to a comprehensive data set that covers the period from 1982 to 1991. The results are based on returns on individual stocks and on portfolios. The findings reveal a significant relationship between these variables and stock returns. Of the four variables considered, share price and the E/P ratio have the most significant impact on the stock returns. However, share price has a positive coefficient while the E/P has a negative one. The evidence from this study suggests that growth stocks in Korea seemed to perform better than value stocks, while the evidence from the U.S. and Japan indicates the contrary. The B/M ratio and size prove insignificant in explaining stock returns. In addition, the central prediction of the CAPM, a positive risk return trade-off, is rejected because the relationship between stock returns and beta is at best flat.;The basic conclusion of this study is that the joint hypothesis that the Korean stock market is informationally efficient and the CAPM is a valid description of the market is rejected. Furthermore, share price, followed by the E/P ratio, is the most important variable in explaining the Korean stock returns during this study period.