Asset pricing factors in Malaysian equity returns

This thesis examines asset pricing factors in Malaysian equity returns. The first study provides new evidence on the pricing of Malaysian equities using the Fama and French (1993) three-factor model and the Carhart (1997) momentum-augmented model for the period 1992 to 2013. In particular, this study is the first attempt to examine whether size, value and momentum factors are priced in the cross-section of Malaysian equity returns. The momentum-augmented model possesses slightly more explanatory power than the Fama-French three-factor model in explaining equity returns. There is evidence that the market risk premium and the value premium are significant. Both of these factors are priced in equity returns. In contrast, neither size nor momentum factors are priced. The second study evaluates the performance of size, value and momentum factors across economic states in Malaysia from 1992 to 2013. No previous study has analysed whether these empirical regularities are related to economic states in the Malaysian setting. The value premium is consistently positive, while there is variation in size and momentum premiums across various holding periods. Further, there is evidence that the size premium is countercyclical. In contrast, value and momentum premiums do not vary significantly across economic states irrespective of the variable employed to define economic states. Hence, these anomalies cannot be explained by macroeconomic risk factors in the Malaysian setting. The third study is a novel attempt to examine the pervasiveness of size, value and momentum anomalies across size groupings in the Malaysian stock market over the period 1992 to 2013. Using portfolio sorts and cross-sectional regressions, there is evidence that the value premium is pervasive for micro, small and big stocks. In addition, the size premium is only concentrated among micro stocks. In contrast, momentum is not a robust explanatory factor of stock returns in all size groups. Moreover, anomalous returns associated with firm size, book-to-market and momentum variables are not driven by seasonality.