Fundamental variables and the cross-section of expected stock returns: the case of Hong Kong

Abstract

Recent empirical evidence indicates that size and book-to-market ratios explain adequately a large part of average stock returns. This paper examines the association of a number of fundamental variables with the cross section of stock returns in the Hong Kong Stock Exchange. The results suggest that, during the 1990s, the small-firm effect has actually gone into reverse and that size and book-to-market equity have a statistically significant relationship with average returns. Beta has little or no role as an explanatory variable.