Testing Multi-Factor Models in ADRs: Emerging Market vs. Developed Market

Tingting Que; Wai Yin Mok; Kit Yee Cheung

doi:10.46281/ijafr.v5i1.486

Tingting Que Assistant Professor, College of Business, University of Alabama in Huntsville, 301 Sparkman Dr NW, Huntsville, AL 35899, USA https://orcid.org/0000-0003-3997-557X
Wai Yin Mok Professor, College of Business, University of Alabama in Huntsville, 301 Sparkman Dr NW, Huntsville, AL 35899, USA https://orcid.org/0000-0001-9729-6677
Kit Yee Cheung College of Business, University of Alabama in Huntsville, 301 Sparkman Dr NW, Huntsville, AL 35899, USA https://orcid.org/0000-0003-0451-3957

DOI: https://doi.org/10.46281/ijafr.v5i1.486

Keywords: Carhart Four-Factor Model, Fama-French Five-Factor Model, ADRs, Developed Markets, Emerging Markets.

Abstract

This paper tests whether the Carhart four-factor model and the Fama-French five-factor model can explain variation in returns of 1,230 ADRs originating from six developed markets and five emerging markets. We aim to compare emerging market ADRs with developed market ADRs in terms of traditional risk factors significance, model fitness and the existence of abnormal returns. Overall, we find that substantial variations exist among ADRs by their origin-of-market. First, both models show that most of the positive abnormal returns we document accrue to emerging market ADRs, mainly Chinese ADRs. Among the risk factors, market risk premium is found to be most prevalent in both emerging and developed markets. Although we find some difference in the presence of particular risk factors employed in the four-factor vs. five-factor model, overall, there are no significant differences in the explanation power between the two models. Lastly, the low R²values imply that both models do not work very well with the international market ADRs.

Author Biographies

Tingting Que, Assistant Professor, College of Business, University of Alabama in Huntsville, 301 Sparkman Dr NW, Huntsville, AL 35899, USA

EDUCATION
Ph.D. Finance University of Iowa 2014

M.A. Economics University of Iowa 2008

B.A. Business Administration Sun Yat-sen University, China 2002

ACADEMIC POSITIONS
Assistant Professor of Finance University of Alabama in Huntsville 2014 Present

Wai Yin Mok, Professor, College of Business, University of Alabama in Huntsville, 301 Sparkman Dr NW, Huntsville, AL 35899, USA

EDUCATION

Ph.D., Computer Science, Brigham Young University, 1996

M.S., Computer Science, Brigham Young University, 1992

B.S., Computer Science, Brigham Young University, 1990

ACADEMIC POSITIONS

Professor of Information Systems, since Fall 2017

Research Fellow, City University of Hong Kong, June 2011 – July 2011

Research Fellow, City University of Hong Kong, July 2010 – August 2010

Senior Research Fellow, City University of Hong Kong, May 2009 – July 2009

Senior Research Fellow, City University of Hong Kong, July 2008 – August 2008

Research Fellow, City University of Hong Kong, July 2007 – December 2007

Tenured granted, August 2006

Associate Professor of Information Systems, UAH, August 2004

Assistant Professor of Information Systems, UAH, August 2001 – August 2004
Wai Yin Mok, April 2019

Assistant Professor of Information Systems, Utah State University, August 1999 – August 2001

Assistant Professor of Computer Science, University of Akron, August 1996 – August 1999

Research Assistant, Brigham Young University, July 1993 – August 1996

Instructor, Brigham Young University, September 1994 – December 1994

Assistant Lecturer, Hong Kong Polytechnic, October 1992 – July 1993

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