http://repub.eur.nl/res/aut/4769/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/1922/ 2005-03-29T00:00:00Z We examine competing explanations, based on risk and behavioral models, for the profitability of stock selection strategies in emerging markets. We document that both emerging market risk and global risk factors cannot account for the significant excess returns of selection strategies based on value, momentum and earnings revisions indicators. The findings for value and momentum strategies are consistent with the evidence from developed markets supporting behavioral explanations. In addition, for value stocks, the most important behavioral bias appears to be related to underestimation of long-term growth prospects, as indicated by overly pessimistic analysts' earnings forecasts and above average earnings revisions for longer postformation horizons and by quite rapidly improving earnings growth expectations. Furthermore, we find that overreaction effects play a limited role for the earnings revisions strategy, as there is no clear return reversal up until five years after portfolio formation, setting this strategy apart from momentum strategies. http://repub.eur.nl/res/pub/6879/ 2001-01-26T00:00:00Z Recent empirical evidence suggests that value and momentum strategies generate significant excess returns in emerging markets. We confirm these results and extend them in several directions. First, we examine a broader range of stock selection strategies, including strategies based on analysts' earnings revisions. We also consider multivariate strategies, whereby stocks are selected on multiple characteristics, and find that this enhances the overall performance. Excess returns also increase if country selection is incorporated into the strategies, but the risk of the strategies increases proportionally. Second, we test whether the strategies can be implemented successfully in practice by a large institutional investor, facing a lack of liquidity, restrictions on foreign ownership and substantial transaction costs. We find that even under such more realistic circumstances the strategies earn significant excess returns. Third, we examine several popular explanations for the excess returns. We find no evidence of higher market risk or lower liquidity of the strategies. Instead, based on the developments of earnings and earnings revisions after portfolio formation, we find that the results are consistent with behavioral explanations.