Equity return anomalies in Turkish markets

Abstract

Purpose- The purpose of this study is to investigate the predictive power of various anomalies in the cross-section of equity returns in Borsa Istanbul. Methodology- Covering a sample period between 1988 and 2018, this study implements univariate portfolio analyses. Specifically, each month, stocks are sorted into quintile portfolios based on one anomaly at a time. Next, the one-month-ahead equal- and value-weighted portfolio returns are calculated for each quintile to test whether the return spread between the extreme anomaly portfolios is economically and statistically significant. Findings- The findings using the whole sample document that market beta, firm size, lagged return and lottery demand have a significant and negative relation with future stock returns. In contrast, book-to-market ratio, investment and profitability have a strong positive relation with expected equity returns. Conclusion- All anomalies that are shown to predict U.S. equity returns are not documented in Turkey. Except for the investment anomaly, the directions of these anomalies are in line with the existing literature in the U.S.