The Cross-Section of Stock Returns in Frontier Markets



We investigate the cross-section of stock returns of the new emerging equity markets in the world, the so-called frontier equity markets. Our sample consists of more than 300 stocks over the period 1997 to 2008 and covers 24 of the most liquid frontier markets. We document the existence of economically and statistically significant value, momentum, and size effects in frontier markets. These effects cannot be explained by traditional risk-based models, liquidity-based models, or effects related to the lack of financial liberalization. Our results support behavioral-based explanations, such as initial underreaction and delayed overreaction for the momentum effect. Finally, we provide evidence that diversification benefits can be obtained when these effects are exploited in frontier markets in addition to developed and emerging markets. Exploiting these anomalies in frontier equity markets in addition to developed and emerging equity markets leads to improved risk-adjusted returns.
The paper can be downloaded and printed from:
The Brown Bag Seminars are sponsored by ERIM.
Contact information:
Sebastian Gryglewicz