Explaining the cross-section of returns in South Africa: Attributes or factor loadings?

Abstract

This study extends the analysis of Daniel and Titman (1997) and Daniel, Titman and Wei (2001) to the Johannesburg Securities Exchange (JSE) and reconsiders the theoretical interpretation of this branch of research. The empirical results, which are also presented graphically, are consistent with the interpretation that the asset pricing relationship on the JSE is better specified using attribute values rather than factor loadings. The theoretical reconsideration, however, points out that this finding is insufficient to distinguish between a risk-based and non-risk-based explanation of the cross-section of returns as has been debated in previous research. More precisely, it performs the task of identifying the more appropriate form of asset pricing model specification.