Factors relevance in asset pricing: new evidences in emerging markets from random matrix theory
DOI:
https://doi.org/10.17811/ebl.14.2.2025.75-87Keywords:
Emerging Markets, Asset Pricing, Random Matrix Theory, Single Index Model, APTAbstract
There is an ongoing debate as to whether multi-factor models provide better results in explaining the cross-sectional expected return of financial assets than the Sharpe model. Despite the evidence provided about the superiority of market Beta in mayor developed markets, the debate does not seem to be closed, even less so for emerging markets.
In this paper, we provide new evidence on the number of significant factors in emerging markets using Random Matrix Theory statistical techniques. We find that, with a confidence level of 99%, no significant factors are found in emerging markets, compared to developed ones, where market beta is always the unique factor. Our results confirm that emerging markets have different characteristics in relation to developed markets.
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