The principal aim of the present chapter is to explore the predictability of equity returns in Argentina, Brazil, Chile, Colombia, Mexico, Peru, and Venezuela. We study the joint roles of market returns (Rm −Rf) or β and firm size, price-to-book value, price-to-earnings, and turnover. Since the robustness of the results is important, the two most discussed econometric methodologies of the cross-sectional behavior of stock returns are employed: (1) the time series regression approach developed by Black et al. (1972) and (2) the cross-sectional approach of Fama and MacBeth (1973).
KeywordsStock Market Stock Return Average Return Excess Return Stock Level
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- 108.Both Cochrane (2001) and Campbell, Lo, and MacKinlay (1997) present the derivation of the CAPM and their implications, as well as an econometric analysis of this model.Google Scholar
- 109.Black et al. (1972) derived a more general version of the CAPM by assuming the non-existence of a risk-free rate.Google Scholar
- 111.For a further discussion on this, see Wise (1963) and Blattberg and Sargent (1968).Google Scholar
- 113.These values are small compared to the correlation between the returns of global portfolios (see Fama and French (1998)).Google Scholar