Anomalies and stock returns: Australian evidence

Prior research has identified the existence of several cross-sectional patterns in equity returns, commonly referred to as effects. This paper tests for the existence of a number of well-known effects using data from the Australian equities market. Specifically, we investigate the size effect, book-to-market effect, earnings-to-price effect, cashflow-to-price effect, leverage effect and the liquidity effect. An additional aim of this paper is to investigate the capability of the Fama-French model in explaining any observed effects. We document a size, book-to-market, earnings-to-price and cashflow-to-price effect but fail to find evidence of a leverage or liquidity effect. Although our findings indicate that the Fama-French model can partially explain some of the observed effects, we conclude that its performance is less than satisfactory in Australia.