by Necula, Ciprian
Published in Romanian Journal of Economic Forecasting, 2009, volume 10 issue 2, 132-146
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This paper tests the relationship between above market returns and beta, size, leverage, book-to-market equity and earning-price ratios for the Bucharest Stock Exchange common stocks. Results from cross-sectional regressions document that both book-to-market equity and earning-price ratios are important risk factors on the Romanian stock market, while, contrary to the CAPM, the relationship between stock returns and beta is insignificant, even when beta is the only explanatory variable. In addition, a portfolio selection model based on the two factors whose explanatory power on stock returns has been previously attested seems to perform well on out-ofsample data.
cross-sectional regressions, risk factors, portfolio selection, Bucharest Stock Exchange
JEL Classification: C21, C31, C51, C52