The Conditional Risk-Return Relations in Two Asian Emerging Stock Markets
33 Pages Posted: 25 Sep 2007 Last revised: 27 Aug 2012
Date Written: August 2007
Abstract
This study provides evidence of the conditional effect on market beta, firm size, book-to-market equity ratio (B/M), and earnings-to-price ratio (E/P) to the cross-section of monthly portfolio excess returns in two Asian emerging stock markets: Malaysia and Thailand. Beta may not be a suitable measure of market risk under unconditional framework whereas it revives and is priced after taking into account the difference between positive and negative market excess returns. In addition to beta, B/M and E/P, but firm size, are also priced by conditional markets. Therefore, investors may form their optimal portfolios based on these significant measures in the two stock markets examined. This study suggests that either model consisting of beta and B/M or model consisting of beta and E/P is likely the more precise model which can provide more appropriate description of asset pricing behavior in the Malaysian and Thailand markets.
Keywords: Beta, firm size; book-to-market equity ratio; earnings-to-price ratio; up and down markets; Malaysia, Thailand
JEL Classification: G12, G15
Suggested Citation: Suggested Citation