Market Anomalies in the BRIC Countries. Stock Market Evidence for Size and Price-to-Book Effects

Master's Thesis from the year 2016 in the subject Business economics - Banking Stock Exchanges Insurance Accounting grade: 13 RWTH Aachen University (Faculty of Business and Economics) course: Corporate Finance language: English abstract: In order to fill a gap in the research on developing equity markets especially emerging markets this study deals with market anomalies in the BRIC countries specifically focusing on identifying the anomalies size and price-to-book effect.However the reason for an analysis regarding stock market anomalies in the BRIC countries is not exclusively limited to the lack of contemporary studies on this topic. The emerging markets in general and specifically the BRIC stock markets are very interesting and valuable objects for respective examinations since they still provide an enormous growth potential. The markets naturally show a high volatility.This study's approach is to explain the established market anomalies and point at factors which may enforce size and price-to-book effects in each BRIC country. Therefore after presenting the BRIC concept in chapter 2 the standard method to estimate the stock return the CapitalAsset Pricing Model (CAPM) is introduced in chapter 3 in order to identify possible weaknesses and certain anomalies which have been identified in the research. The most common anomalies will be introduced in chapter 4. Subsequently an alternative method to explain the stock return the Fama / French three-factor model is discussed as a possibility to identify further risk factors which can invalidate anomalies with respect to the CAPM in chapter 5. Furthermore a brief overview on previous studies which include valuation anomalies in the respective countries is given in chapter 6. In the empirical part of chapter 7 each country is analyzed individually with respect to size and price-to-book effects. However the study applies the same empirical analysis for each stock market in order to o