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An Examination of Conditional Effect on Cross-Sectional Returns: Singapore Evidence
So, Simon M. S.2; Tang, Gordon Y. N.1
2006
Conference Namethe 4th International Conference on Accounting and Finance in Transition (ICAFT)
Source Publicationproceedings of the 4th International Conference on Accounting and Finance in Transition (ICAFT)
Conference DateApril 2006
Conference PlaceAdelaide, Australia
Abstract

This article empirically examines the usefulness of beta, firm size, book-to-market equity ratio (B/M) and earnings-to-price ratio (E/P), as risk proxies in explaining the cross-sectional returns in the Singapore stock market under both unconditional and conditional frameworks based on up and down markets. Consistent with previous studies, though beta plays no role under unconditional framework, there is evidence of a significantly positive (negative) risk premium on beta during periods of up (down) markets, supporting for the continuous use of beta as a risk measure. Interestingly, our results show that firm size is the only significant variable in explaining average returns under the unconditional framework but its impact becomes much less under the up and down market conditions. However, significant conditional effect of E/P is found. Although, B/M alone is not significantly conditionally related to returns, in various combinations with beta, it becomes significant and the joint role of beta and B/M, due to an interaction effect between them, has an ‘amplified’ gain in the explanatory power. Our study suggests that beta does not suffice to explain the cross-sectional variations of returns, but it is possible that the joint effect of beta and B/M may be a surrogate as an underlying and more fundamental factor that is missing in the conditional SLB model. We also find evidence that investors in the Singapore stock market react virtually the same to these firm-specific factors and to beta during up and down markets. Our results are robust for both beta-size and size-beta sorting procedures and for both value- and equally weighted market proxies.

DOIhttps://doi.org/10.1080/00036840701720879
Indexed BySSCI ; SSCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectEconomics
WOS IDWOS:000274541300011
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Document TypeConference paper
CollectionFaculty of Business Administration
DEPARTMENT OF ACCOUNTING AND INFORMATION MANAGEMENT
Affiliation1.Hong Kong Baptist Univ, Dept Finance & Decis Sci, Kowloon, Hong Kong, Peoples R China
2.Univ Macau, Fac Business Adm, Taipa, Macau, Peoples R China
First Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
So, Simon M. S.,Tang, Gordon Y. N.. An Examination of Conditional Effect on Cross-Sectional Returns: Singapore Evidence[C],2006.
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