The Cross-Section of Expected Stock Returns

Abstract

This study examined the cross-section of expected stock returns in relation to market beta, market capitalization, earning yield, leverage, book-to-market equity, cash flow yield and dividend yield of non-financial enterprises of Nepal. Two easily measured variables, viz.: market beta and market capitalization were combined to capture the cross-sectional variation in average stock returns associated with earning yield, leverage, book-to-market equity, cash flow yield and dividend yield. Further, enterprises with high market beta, market capitalization, and dividend yield have higher average returns. However, enterprises with low book-to-market equity have high average returns. Moreover, investors and brokers believe that share price change is not a random phenomenon in Nepal due to lack of awareness of the long-term investors and the excessive speculative behaviors of the limited and voluminous market players