Can Book-To-Market and Size Be Risk Factors that Predict Economic Growth in Asias Emerging Economies?

Abstract

We investigate whether the two zero cost portfolios, SMB a nd HML, have the abili ty to predict economic grow th for marke ts investigated in this paper. Our findings show tha t there a re only a limited number of cases w hen th e coefficients a re positive and sigmficance is achieved in an even more limited number of ca es. Our results a re in stark contrast to Liew and Vassalou (2000) who fi nd coefficients to be generally positive and of a similar ma gnitude. We go a s te p further an d also empl oy th e m e th o d o logy of Lakonishok, Shleife r and Vishny (1994) and once again fail to support the risk-based hypothesis of Liew and Vassalou (2000). In sum, we a rgue that search for a robust economic expla nation fo r firm size and book-to-market equity effec ts needs s ustai ned e ffort a th e e two zero cost portfolios do no t rep resent economically relevan t aggregate risk.