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Abstract
In this paper we investigate the explanatory power of the market beta, firm size, and the book-to-market ratio, as well as Value-at-Risk regarding the cross-sectional expected stock returns in a less developed stock market – Taiwan's stock market. The main purpose is to examine whether the Value-at-Risk factor has marginal explanatory power related to the Fama-French three-factor model. The empirical results show that Value-at-Risk can account for the average stock returns at both 1% and 5% significance levels based on cross-sectional regression analysis. Moreover, from the perspective of the time series regression, the Value-at-Risk factor can also demonstrate the variation of the stock market, especially for the larger companies in the Taiwan stock market.
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Notes on contributors
Dar-Hsin Chen
Dar-Hsin CHEN is a Professor of Finance at the Department of Business Administration, National Taipei University and has received his PhD from the University of Mississippi in 1998. His research interests are corporate finance, international finance, and risk management.
Chun-Da Chen
Chun-Da CHEN is an Associate Professor of Finance at the Department of Economics and Finance, Tennessee State University. He holds a PhD in Finance from the Tamkang University in 2005 and has published in journals such as Journal of Economic Behavior and Organization, International Review of Financial Analysis, and International Review of Economics and Finance.
Su-Chen Wu
Su-Chen WU receives a MBA in Finance from the Graduate Institute of Finance, National Chiao Tung University in 2005.