Firm profitability and expected stock returns : evidence from Latin America

Despite their higher valuation ratios, larger size, and higher investment needs, profitable firms outperform, in both raw and risk-adjusted returns, unprofitable firms in Latin America. The positive effect of firm profitability on stock returns is pervasive in univariate and bivariate sorts, panel regressions, across sub-regional markets, and among small and large stocks. A five-factor model that includes market, size, distress, profitability, and investment factors prices profitability portfolios better than other popular factor models. Five-factor alphas of profitability portfolios tend to be lower and less statistically significant, both individually and collectively, than alphas from other three widely-used pricing models.

• Autores: Berggrun, Luis; Cardona, Emilio; Lizarzaburu Bolaños, Edmundo R.
• Tipo de recurso: Article of investigation
• Fecha de publicación: 2020
• Institución: Colegio de Estudios Superiores de Administración
• Repositorio: Repositorio CESA
• Idioma: eng
• OAI Identifier: oai:repository.cesa.edu.co:10726/5080
• Acceso en línea: http://hdl.handle.net/10726/5080; https://doi.org/10.1016/j.ribaf.2019.101119
• Palabra clave: Operating profitability; Cross-sectional returns; Five-factor model; Emerging markets
• License: Acceso Restringido