We are the first to investigate the cross-section of stock returns in the new emerging equity markets, the so-called frontier emerging markets. Our unique survivorship-bias free data set consists of more than 1,400 stocks over the period 1997 to 2008 and covers 24 of the most liquid frontier emerging markets. The major benefit of using individual stock characteristics is that it allows us to investigate whether return factors that have been documented in developed countries also exist in these markets. We document the presence of economically and statistically significant value and momentum effects, and a local size effect. Our results indicate that the value and momentum effects still exist when incorporating conservative assumptions of transaction costs. Additionally, we show that value, momentum, and local size returns in frontier markets cannot be explained by global risk factors.

alpha, behavioral finance, emerging markets, frontier markets, momentum effects, size effect, value effect
International Investment; Long-Term Capital Movements (jel F21), International Finance: General (jel F30), Portfolio Choice; Investment Decisions (jel G11), International Financial Markets (jel G15)
Erasmus Research Institute of Management
hdl.handle.net/1765/37284
ERIM Report Series Research in Management
This paper is forthcoming in the Journal of Empirical Finance
Erasmus Research Institute of Management

de Groot, W.A, Pang, J, & Swinkels, L.A.P. (2012). The Cross-Section of Stock Returns in Frontier Emerging Markets (No. ERS-2012-012-F&A). ERIM Report Series Research in Management. Erasmus Research Institute of Management. Retrieved from http://hdl.handle.net/1765/37284