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The paper has two main objectives. The first is to test for the presence of the size and book-to-market value effects in the Visegrad countries. Such effects have been found in the United States and many other developed stock markets. The Visegrad countries consist of the Czech Republic, Hungary, Poland, and Slovakia. The authors demonstrate that size and value do in fact explain the expected return/cost of capital in Eastern Europe. Based on this result, they proceed by constructing regional size and book-to-market portfolios for a combined Visegrad market. Returns on these portfolios serve as factors in addition to the market portfolio.
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