Journal of Advances in Economics and Finance

Download PDF (280.6 KB) PP. 195 - 212 Pub. Date: August 1, 2017

DOI: 10.22606/jaef.2017.23005

• Carlos Elias
  School of Business, Manhattan College, New York City, United States
• Rokas Kirlys
  School of Business, Manhattan College, New York City, United States
• Kudret Topyan^*
  School of Business, Manhattan College, New York City, United States

This paper provides a comprehensive analysis on stock return predictability in Santiago Stock Exchange from January 2007 to January 2016 by employing portfolio method. In the riskrelated predictors, we found no statistically significant predictive power of beta, total volatility, and idiosyncratic volatility in all stock sets. In addition to market cap and short-term reversal, the two cheapness variables, book-to-market and cash-flow-to-price ratios showed consistent economically and statistically significant predictive powers in determining the stock returns in the Santiago Stock Exchange. We also found that regrouping the stocks as small and large, low and high book-to-market, beta, and momentum according to the median values adds insights to the analysis. Our results show that the set of large stocks in the exchange is the least predictable set of stocks, however, momentum is efficiently predicted their return. Momentum is significant only for the large stocks and low bookto-market stocks, and risk-related predictors are good for high beta stocks only.

Santiago stock exchange, stock returns, book-to-market ratio, momentum, stock cheapness, portfolio method

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