Are there significant premiums in the Saudi stock market?

- Saudi Arabia has announced the opening of its Stock Exchange for qualified foreign investors starting June 15, 2015. The decision to open up the largest stock market in the MENA region marks a major milestone that deserves special recognition.
- From a foreign investor's standpoint, the Saudi stock market offers multiple diversification opportunities and great exposure to reviving industries.
- This paper confirms the existence of significant factor premiums in the Saudi stock market. Specifically, the analysis of this paper found significant premiums to all factors under examinations (volatility, size, momentum, value, and dividend yield) in the Saudi stock exchange during the period from January 1999 to December 2014.
- Interestingly, we encounter a remarkable anomaly in which riskier assets do not necessarily offer higher returns. Such findings could prove valuable for both investors and policymakers - especially for retail investors who mistakenly believe that higher risks result in higher rewards.
- Opening up the Saudi stock exchange for qualified foreign investors is a key step to simultaneously increase the efficiency of and curb some of the existing anomalies in the Saudi stock market.

Saudi Arabia has announced the opening of its Stock Exchange for qualified foreign investors starting June 15, 2015. This decision marks a major milestone that deserves special recognition. Given the presence of factor anomalies in other stock markets, we examine whether similar factors concur in the Saudi market. The findings confirm the existence of significant premiums for all of the factors under investigation. Interestingly, we encounter a remarkable anomaly within which riskier assets do not necessarily offer higher returns. Such findings could prove valuable for retail investors who mistakenly believe that higher risks result in higher rewards.