The Fama and French Five Factor Model: Evidence from an Emerging Market

2018 ◽  
Vol 38 (2) ◽  
pp. 295-304
Author(s):  
Dima Alrabadi ◽  
Hanna Alrabadi
Keyword(s):  
Factor Model ◽  
Five Factor Model ◽  
Emerging Market ◽  
Model Evidence ◽  
Fama And French

scholarly journals The Fama and French Five Factor Model: Evidence from an Emerging Market

2018 ◽  
Vol 38 (3) ◽  
pp. 295-304
Author(s):  
Dima Waleed Hanna Alrabadi ◽  
Hanna Waleed Hanna Alrabadi
Keyword(s):  
Factor Model ◽  
Five Factor Model ◽  
Emerging Market ◽  
Model Evidence ◽  
Fama And French

scholarly journals A Comparative Study between the Fama and French Three-Factor Model and the Fama and French Five-Factor Model: Evidence from the Egyptian Stock Market

2019 ◽  
Vol 12 (1) ◽  
pp. 52 ◽  
Author(s):  
Nada S. Ragab ◽  
Rabab K. Abdou ◽  
Ahmed M. Sakr
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Factor Model ◽  
Five Factor Model ◽  
Pricing Models ◽  
Asset Pricing Models ◽  
Time Period ◽  
Model Evidence ◽  
Fama And French ◽  
Three Factor

The focus of this paper is to test whether the Fama and French three-factor and five factor models can capture the variations of returns in the Egyptian stock market as one of the growing emerging markets over the time-period July 2005 to June 2016. To achieve this aim, following Fama and French (2015), the authors construct the Fama and French factors and three sets of test portfolios which are: 10 portfolios double-sorted on size and the BE/ME ratio, 10 portfolios double-sorted on size and operating profitability, and 10 portfolios double-sorted on size and investment for the Egyptian stock market. Using time-series regressions and the GRS test, the results show that although both models cannot be rejected as valid asset pricing models when applied to portfolios double-sorted on size and the BE/ME ratio, they still leave substantial variations in returns unexplained given their low adjusted R2 values. Similarly, when the two models are applied to portfolios double-sorted on size and investment, the results of the GRS test show that both models cannot be rejected. However, when the two models are applied to portfolios double-sorted on size and operating profitability, the results of the GRS test show that both models are strongly rejected which imply that both models leave substantial variations in returns related to size and profitability unexplained. Specifically, the biggest challenge to the two models is the big portfolio with weak profitability which generate a significantly negative intercept implying that the models overestimate its return.

scholarly journals The Empirical Test of Fama-French Five-Factor Model: Evidence from Pakistan Stock Exchange

2020 ◽  
Vol V (III) ◽  
pp. 32-39
Author(s):  
Kanwal Haqqani ◽  
Wali Rahman
Keyword(s):  
Factor Model ◽  
Stock Exchange ◽  
Empirical Test ◽  
Five Factor Model ◽  
Time Series Regression ◽  
Empirical Examination ◽  
Financial Firms ◽  
Model Evidence ◽  
Fama And French ◽  
Using Data

This study provides an empirical examination of the Fama and French five-factor asset pricing model (FF5FM) in the equity market of Pakistan. Using data from 2007 to 2017of non-financial firms listed on PSX. The univariate approach is used to construct the dependent portfolios based on four firms characteristics, while a 2x3 approach is used to construct size, value, profitability, and investment factors. Time series regression is used to analyze the data to obtained results. The empirical evidence demonstrates that FF5FM performs better the three-factor model in the Pakistan stock market and the performance of the four-factor model that drops investment factor is similar to FF5FM except for portfolios constructed based on investment factor.

scholarly journals An Analysis and Comparison of Multi-Factor Asset Pricing Model Performance during Pandemic Situations in Developed and Emerging Markets

Mathematics ◽  
2022 ◽  
Vol 10 (1) ◽  
pp. 142
Author(s):  
Konstantin B. Kostin ◽  
Philippe Runge ◽  
Michel Charifzadeh
Keyword(s):  
Emerging Markets ◽  
Factor Model ◽  
Five Factor Model ◽  
Emerging Market ◽  
Model Performance ◽  
Research Area ◽  
Emerging Countries ◽  
Developed Markets ◽  
The Cost ◽  
Three Factor

This study empirically analyzes and compares return data from developed and emerging market data based on the Fama French five-factor model and compares it to previous results from the Fama French three-factor model by Kostin, Runge and Adams (2021). It researches whether the addition of the profitability and investment pattern factors show superior results in the assessment of emerging markets during the COVID-19 pandemic compared to developed markets. We use panel data covering eight indices of developed and emerging countries as well as a selection of eight companies from these markets, covering a period from 2000 to 2020. Our findings suggest that emerging markets do not generally outperform developed markets. The results underscore the need to reconsider the assumption that adding more factors to regression models automatically yields results that are more reliable. Our study contributes to the extant literature by broadening this research area. It is the first study to compare the performance of the Fama French three-factor model and the Fama French five-factor model in the cost of equity calculation for developed and emerging countries during the COVID-19 pandemic and other crisis events of the past two decades.

scholarly journals Analysis of the Spanish IBEX-35 Companies’ Returns Using Extensions of the Fama and French Factor Models

Symmetry ◽  
2020 ◽  
Vol 12 (2) ◽  
pp. 295 ◽  
Author(s):  
Francisco Jareño ◽  
María de la O González ◽  
Laura Munera
Keyword(s):  
Interest Rates ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Factor Models ◽  
Final Conclusion ◽  
Economic Cycle ◽  
Explanatory Factors ◽  
Nominal Interest Rates ◽  
Fama And French

This paper studies in depth the sensitivity of Spanish companies’ returns to changes in several risk factors between January 2000 and December 2018 using the quantile regression approach. Concretely, this research applies extensions of the Fama and French three- and five-factor models (1993 and 2015), according to González and Jareño (2019), adding relevant explanatory factors, such as nominal interest rates, the Carhart (1997) risk factor for momentum and for momentum reversal and the Pastor and Stambaugh (2003) traded liquidity factor. Additionally, for robustness, this paper splits the entire sample period into three sub-sample periods (pre-crisis, crisis and post-crisis) to analyse the results according to the economic cycle. The main conclusions of this paper are fourfold: First, these two models have the greatest explanatory power in the extreme quantiles of the return distribution (0.1 and 0.9) and more specifically in the lowest quantile 0.1. Second, the second model, based on the Fama and French five-factor model, shows the highest explanatory power not only in the full period but also in the three sub-periods. Third, the bank BBVA is the company that shows the highest sensitivity to changes in the explanatory factors in most periods because its adjusted R2 is the highest. Fourth, the stage of the economy with the highest explanatory power is the crisis subperiod. Thus, the final conclusion of this paper is that the second model explains best variations in Spanish companies’ returns in crisis stages and low quantiles.

Four-moment CAPM Model: Evidence from the Indian Stock Market

2019 ◽  
Vol 18 (1_suppl) ◽  
pp. S137-S166
Author(s):  
Dheeraj Misra ◽  
Sushma Vishnani ◽  
Ankit Mehrotra
Keyword(s):  
Factor Model ◽  
Jel Classification ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Model Evidence ◽  
Fama And French ◽  
Capm Model ◽  
Indian Stock Market ◽  
The Impact

This study aims at analysing the impact of co-skewness and co-kurtosis on the returns of the Indian stocks by incorporating co-skewness and co-kurtosis in the traditional capital asset pricing model (CAPM) of Sharpe, in a three-factor model of Fama and French and in a four-factor model of Carhart. The results of the study show that co-skewness and co-kurtosis have significant impact on the returns of the Indian stock. However, the impact of co-skewness is higher than co-kurtosis. JEL Classification: G11, G12

scholarly journals Interest rate sensitivity of spanish companies. An extension of the Fama-French five-factor model

2018 ◽  
Vol 68 (4) ◽  
pp. 617-638 ◽  
Author(s):  
Francisco Jareño ◽  
María de la O González ◽  
Marta Tolentino ◽  
Sara Rodríguez
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Rate Sensitivity ◽  
Share Prices ◽  
Explanatory Variables ◽  
Fama And French ◽  
Recent Financial Crisis

This paper studies the sensitivity of share prices of Spanish companies included in the IBEX-35 to changes in different explanatory variables, such as market returns, interest rates and factors proposed by Fama and French (1993, 2015) between 2000 and 2016. In addition, for robustness, this paper analyses whether the sensitivity of stock returns is different between two periods: precrisis and recent financial crisis. The results confirm that, in general, all the considered factors are relevant. Furthermore, “market return” and “size” factors show greater explanatory power, together with the “value” factor in the crisis period. Regarding the analysis at sector level, “Oil and Energy”, “Basic Materials, Industry and Construction” and “Financial and Real Estate Services” sectors appear to be highly sensitive to changes in the risk factors included in the asset pricing factor model.

Evaluating alternative performance benchmarks for Indian mutual fund industry

2017 ◽  
Vol 14 (2) ◽  
pp. 222-250 ◽  
Author(s):  
Sanjay Sehgal ◽  
Sonal Babbar
Keyword(s):  
Asset Pricing ◽  
Mutual Fund ◽  
Factor Model ◽  
Five Factor Model ◽  
Content Type ◽  
Asset Pricing Model ◽  
Fund Managers ◽  
Asset Pricing Models ◽  
Performance Benchmarks ◽  
Fama And French

Purpose The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context. Design/methodology/approach Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Elton et al. (1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model. Findings Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios. Practical implications A significant α generated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking. Originality/value The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.

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