Illiquidity Exposure of Size and Value in Malaysian Equity Returns

This study examines pricing implications of size, value, illiquidity and momentum effects in Malaysian stock returns. It employs time series and panel methods in testing APT-motivated pricing models over a sample period of 14 years up to 2013. Results indicate the significance of illiquidity over size and value factors. Capital Assets Pricing Model (CAPM) poorly performs in explaining average stock returns. An asset’s exposure to size, value, momentum, and illiquidity characteristics subordinates CAPM’s explanatory power. Momentum trading strategy is profitable in short to intermediate horizons, yet momentum risk factor is unable to improve the efficiency of pricing models. Application of illiquidity adjusted Fama-French threefactor model is apparently persuasive for investments and related decisions in Malaysia