Comparing competing factor and characteristics models: Evidence in Japan

Pin Huang Chou; Kuan Cheng Ko; S. Ghon Rhee

doi:10.1016/j.pacfin.2023.102179

Comparing competing factor and characteristics models: Evidence in Japan

Pin Huang Chou
, Kuan Cheng Ko
, S. Ghon Rhee

Department of Finance

Research output: Contribution to journal › Article › peer-review

2 Scopus citations

Abstract

The main purpose of this study is to simultaneously compare the explanatory abilities of various firm characteristics and factor models in the Japanese stock market. We show that the factor models developed by Fama and French (1993, 2015, 2018), Carhart (1997), and Hou et al. (2015) all fail to be priced in Japan. In addition, value and operating profitability anomalies are prevalent in Japan, while size, investment, and momentum effects are not. Our findings are in line with what is indicated in the existing literature: the characteristics model associated with value and operating profitability better describes the cross-sectional variations of stock returns than factor models in Japan.

Original language	English
Article number	102179
Journal	Pacific Basin Finance Journal
Volume	82
DOIs	https://doi.org/10.1016/j.pacfin.2023.102179
State	Published - Dec 2023

Keywords

Asset pricing anomalies
Asset pricing models
Errors-in-variables bias
Instrumental variables
Japanese market

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10.1016/j.pacfin.2023.102179

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title = "Comparing competing factor and characteristics models: Evidence in Japan",

abstract = "The main purpose of this study is to simultaneously compare the explanatory abilities of various firm characteristics and factor models in the Japanese stock market. We show that the factor models developed by Fama and French (1993, 2015, 2018), Carhart (1997), and Hou et al. (2015) all fail to be priced in Japan. In addition, value and operating profitability anomalies are prevalent in Japan, while size, investment, and momentum effects are not. Our findings are in line with what is indicated in the existing literature: the characteristics model associated with value and operating profitability better describes the cross-sectional variations of stock returns than factor models in Japan.",

keywords = "Asset pricing anomalies, Asset pricing models, Errors-in-variables bias, Instrumental variables, Japanese market",

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T1 - Comparing competing factor and characteristics models

T2 - Evidence in Japan

AU - Chou, Pin Huang

AU - Ko, Kuan Cheng

AU - Rhee, S. Ghon

PY - 2023/12

Y1 - 2023/12

N2 - The main purpose of this study is to simultaneously compare the explanatory abilities of various firm characteristics and factor models in the Japanese stock market. We show that the factor models developed by Fama and French (1993, 2015, 2018), Carhart (1997), and Hou et al. (2015) all fail to be priced in Japan. In addition, value and operating profitability anomalies are prevalent in Japan, while size, investment, and momentum effects are not. Our findings are in line with what is indicated in the existing literature: the characteristics model associated with value and operating profitability better describes the cross-sectional variations of stock returns than factor models in Japan.

AB - The main purpose of this study is to simultaneously compare the explanatory abilities of various firm characteristics and factor models in the Japanese stock market. We show that the factor models developed by Fama and French (1993, 2015, 2018), Carhart (1997), and Hou et al. (2015) all fail to be priced in Japan. In addition, value and operating profitability anomalies are prevalent in Japan, while size, investment, and momentum effects are not. Our findings are in line with what is indicated in the existing literature: the characteristics model associated with value and operating profitability better describes the cross-sectional variations of stock returns than factor models in Japan.

KW - Asset pricing anomalies

KW - Asset pricing models

KW - Errors-in-variables bias

KW - Instrumental variables

KW - Japanese market

UR - https://www.scopus.com/pages/publications/85173284023

U2 - 10.1016/j.pacfin.2023.102179

DO - 10.1016/j.pacfin.2023.102179

M3 - 期刊論文

AN - SCOPUS:85173284023

SN - 0927-538X

VL - 82

JO - Pacific Basin Finance Journal

JF - Pacific Basin Finance Journal

M1 - 102179

ER -

Comparing competing factor and characteristics models: Evidence in Japan

Abstract

Keywords

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