Local Return Factors and Turnover in Emerging Stock Markets

TLDR

Cross‑sectional return drivers in emerging markets resemble those in developed markets. The study applies Bayesian analysis of return premiums to show that similar return factors exist worldwide. Emerging market stocks exhibit momentum, small‑size and value premiums, no beta premium, and share turnover strongly correlates with return factors.

Abstract

The factors that drive cross‐sectional differences in expected stock returns in emerging equity markets are qualitatively similar to those that have been documented for developed markets. Emerging market stocks exhibit momentum, small stocks outperform large stocks, and value stocks outperform growth stocks. There is no evidence that high beta stocks outperform low beta stocks. A Bayesian analysis of the return premiums shows that the combined evidence of developed and emerging markets strongly favors the hypothesis that similar return factors are present in markets around the world. Finally, there exists a strong cross‐sectional correlation between the return factors and share turnover.