Lai, Li, Conover, and Wu (2010) propose a four-factor financial distress model to explain stock returns in the U.S. and Japanese markets. We examine this model in the stock markets of Australia, and six Asian markets (Hong Kong, Indonesia, Korea, Malaysia, Singapore, and Thailand). We find broad empirical support for the four-factor financial distress risk asset-pricing model in those markets. The four-factor financial distress asset pricing model improves explanatory power beyond the Fama–French (1993) three-factor asset pricing model in six of the seven Asian-Pacific markets (12 of 14 portfolio groupings), while the Carhart (1997) momentum-based asset pricing model only improves explanatory power beyond the Fama–French model in three of the seven markets (4 of 14 portfolio groupings).
Li, H.-C., Lai, S., Conover, J.A., Wu, F. and Li, B. (2017), "Stock Returns and Financial Distress Risk: Evidence from the Asian-Pacific Markets", Growing Presence of Real Options in Global Financial Markets (Research in Finance, Vol. 33), Emerald Publishing Limited, Bingley, pp. 123-158. https://doi.org/10.1108/S0196-382120170000033007
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