Buffet's investment style: evidence from Thai stock market.

Abstract

This paper examines the validity of beta factor in Thai stock market returns. Using the five-factors include the market factor (market risk premium, MKT), the size factor (small market capitalization minus big market capitalization, SMB), the book-to-market factor (high book-to-market equity ratio minus low book-to-market equity ratio, HML), the momentum factor (winners minus losers, WML) and beta factor (BAB). Our data cover stocks traded in the Stock Exchange of Thailand (SET100) from February 2003 to February 2012. Monthly excess stock returns are computed from nine testing portfolios based on size and book-to-market ratios. Time series regressions following Fama and French (1992) are employed to test the five-factor model on these nine testing portfolios. The test result shows that the Gibbons-Ross-Shanken (GRS) statistic reject the null hypothesis of zero alphas (risk-adjusted excess return) in every model. However, the BAB augmented 4-factor model has the highest adjusted-R2 value compared to other models. In conclusion, the BAB augmented 4-factor model is the best model to explain the stock returns but the beta factor is not a significant factor to explain average excess stock returns in the Thai stock market. Following Frazzini and Pederson (2014) we find that a BAB factor earns significant positive returns and stocks with higher volatility earn relatively lower returns. Our results are similar to those found in the US (Frazzini & Pederson, 2014) and India (Agarwalla, Jacob, Varma, & Vasudevan, 2014).

KEY WORDS: BETTING AGAINST BETA/ BAB FACTOR / THAI STOCK RETURN