National Central University National Chi Nan University National Chengchi University
Abstract:
Based on an errors-in-variables-free approach proposed by Brennan, Chordia, and Subrahmanyam (1998), we investigate the competing explanatory abilities of alternative multi-factor models in examining various asset-pricing anomalies using Japanese data over 1978-2006. Surprisingly, we find that turnover and BM are the two major characteristics that significantly explain the average stock returns. A further subperiod analysis reveals that turnover effect is significant only before 1990, but cannot be explained by any multifactor models. In contrast, the BM premium is significant only after 1990, and can be explained by the Fama-French three-factor model. Thus, the results suggest that asset-pricing anomalies documented in the literature are not universal, and may be different across different markets.
