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The Cross-Section of Expected Stock Returns: New Evidence from an Emerging Market

The Cross-Section of Expected Stock Returns: New Evidence from an Emerging Market

Thach Ngoc Pham1 , Vuong Minh Nguyen2 , and Duc Hong Vo2

1 Vietnam – The Netherlands Program, Ho Chi Minh City, Vietnam;

2 Business and Economics Research Group, Ho Chi Minh City Open University, Ho Chi Minh City, Vietnam 

Accepted author version posted online: 14 May 2018. Published online: 01 Aug 2018.

ABSTRACT

Over 300 factors have been found to explain the cross-section of expected stock returns. Empirical studies also show that findings from multifactor asset-pricing models have not been consistent in an emerging market. Using DuPont analysis and a residual income valuation model for 284 nonfinancial companies on Ho Chi Minh Stock Exchange during the period 2008–2014, findings suggest that the return on equity and its change are informative for stock returns in Vietnam. In addition, the level of capital turnover, financial cost ratio (FCR), and changes in capital and in the FCR contain incremental explanatory power for stock returns.

KEY WORDS: asset pricing, DuPont analysis, residual income valuation, stock returns, Vietnam

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