A cross-section of expected stock returns on the Istanbul stock exchange

Abstract

In their seminal work on the American market, Fama and French (1992) found that book-to-market equity stands out as the most significant factor in explaining the cross-section of returns.Mar ket risk measured by beta, on the other hand, has no explanatory power even in models where it is the only explanatory variable.Chan et al. (1991) reached the same conclusion on book-to-mar ket in the Japanese market.As an alternative to the capital asset pricing model, Fama and French (1993) suggested a three-factor empirical model that can explain most of the empirical anomalies cited in the literature.Yet, Daniel and Titman (1997), by looking at the covariance structure of returns, together with certain firm characteristics, argued that the three factors in Fama and French (1993;1996) are not priced; hence, they cannot be considered as risk factors.Research on stock returns in emerging markets indicate that these markets are characterized by high volatility and high returns.