TY - JOUR
T1 - Stock return distribution in the BRICS
AU - Adu, George
AU - Alagidede, Paul
AU - Karimu, Amin
N1 - Publisher Copyright:
© 2015 Africagrowth Institute. Production and hosting by Elsevier B.V. All rights reserved.
PY - 2015/12/1
Y1 - 2015/12/1
N2 - Stock returns in emerging market economies exhibit patterns that are distinctively different from developed countries: returns are noted to be highly volatile and autocorrelated, and long horizon returns are predictable. While these stylized facts are well established, the assumption underlying the distribution of returns is less understood. In particular, the empirical literature continues to rely on the normality assumption as a starting point, and most asset pricing models tend to overstretch this point. This paper questions the rationale behind this supposition and proceeds to test more formally for normality using multivariate joint test for skewness and kurtosis. Additionally, the paper extends the literature by examining a number of empirical regularities for Brazil, Russia, India, China and South Africa (the BRICS for short). Our main findings are that the distribution of stock returns for the BRICS exhibits peakedness with fatter and longer tails, and this is invariant to both the unit of measurement and the time horizon of returns. Volatility clustering is prevalent in all markets, and this decays exponentially for all but Brazil. The relationship between risk and return is found to be significant and risk premiums are prevalent in our sample.
AB - Stock returns in emerging market economies exhibit patterns that are distinctively different from developed countries: returns are noted to be highly volatile and autocorrelated, and long horizon returns are predictable. While these stylized facts are well established, the assumption underlying the distribution of returns is less understood. In particular, the empirical literature continues to rely on the normality assumption as a starting point, and most asset pricing models tend to overstretch this point. This paper questions the rationale behind this supposition and proceeds to test more formally for normality using multivariate joint test for skewness and kurtosis. Additionally, the paper extends the literature by examining a number of empirical regularities for Brazil, Russia, India, China and South Africa (the BRICS for short). Our main findings are that the distribution of stock returns for the BRICS exhibits peakedness with fatter and longer tails, and this is invariant to both the unit of measurement and the time horizon of returns. Volatility clustering is prevalent in all markets, and this decays exponentially for all but Brazil. The relationship between risk and return is found to be significant and risk premiums are prevalent in our sample.
KW - Efficiency
KW - Emerging markets
KW - Leverage effect
KW - Normality
KW - Return predictability
KW - Volatility clustering
UR - http://www.scopus.com/inward/record.url?scp=84949675513&partnerID=8YFLogxK
U2 - 10.1016/j.rdf.2015.09.002
DO - 10.1016/j.rdf.2015.09.002
M3 - Article
AN - SCOPUS:84949675513
SN - 1879-9337
VL - 5
SP - 98
EP - 109
JO - Review of Development Finance
JF - Review of Development Finance
IS - 2
ER -