A closer look at the size and value premium in emerging markets: Evidence from the Kuala Lumpur stock exchange

In this study of asset pricing in emerging markets, two questions are asked. First, Is there a size and value premium in markets outside the USA? Second, Can the multifactor model of Fama and French (1996) capture the cross-section of average stock returns for the Malaysian setting? The answers from this study suggest that size and value premium exist in markets outside the USA. We find that the two mimic portfolios, 'small minus big' (SMB) and 'high minus low' (HML), generate a return of 17.70% and 17.69% per annum, respectively, while the market generates a return of 1.92% per annum. Our findings suggest that the multifactor model of Fama and French (1996) is a parsimonious representation of the risk factors for Malaysia, explaining returns in an economically meaningful manner. Our findings also reject the claim that the multifactor model results can be explained by the turn-of-the-year effect.