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

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.

2021 ◽  
pp. 135481662199298
Author(s):  
Francisco Jareño ◽  
Ana Escribano ◽  
M Pilar Torres

This research explores the sensitivity of the returns of some selected European companies to changes in the explanatory factors proposed during the sample period between January 2000 and December 2019. We focus on listed companies in the tourism and services sector and estimate an extension of the Fama and French five-factor model (2015) by applying the quantile regression approach. Specifically, this study starts from the Fama and French risk factors and adds the nominal interest rates, a momentum and momentum reversal factors and a traded liquidity factor. For robustness, this research divides the whole sample period into three sub-periods: pre-crisis, crisis and post-crisis. In line with the previous literature, the explanatory power of this factor model shows a U-shape, which is compatible with the highest R2 coefficients in the extreme quantiles, as well as in extreme stages of the economy, that is, in the bullish and bearish market states.


2018 ◽  
Vol 68 (4) ◽  
pp. 617-638 ◽  
Author(s):  
Francisco Jareño ◽  
María de la O González ◽  
Marta Tolentino ◽  
Sara Rodríguez

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.


2021 ◽  
Vol 14 (3) ◽  
pp. 96
Author(s):  
Nina Ryan ◽  
Xinfeng Ruan ◽  
Jin E. Zhang ◽  
Jing A. Zhang

In this paper, we test the applicability of different Fama–French (FF) factor models in Vietnam, we investigate the value factor redundancy and examine the choice of the profitability factor. Our empirical evidence shows that the FF five-factor model has more explanatory power than the FF three-factor model. The value factor remains important after the inclusion of profitability and investment factors. Operating profitability performs better than cash and return-on-equity (ROE) profitability as a proxy for the profitability factor in FF factor modeling. The value factor and operating profitability have the biggest marginal contribution to a maximum squared Sharpe ratio for the five-factor model factors, highlighting the value factor (HML) non-redundancy in describing stock returns in Vietnam.


2021 ◽  
Vol 2021 ◽  
pp. 1-7
Author(s):  
Yicun Li ◽  
Yuanyang Teng ◽  
Wei Shi ◽  
Lin Sun

This paper proposes a new factor model, which is built upon the marriage of the Fama and French five-factor model and a long memory factor based on the monthly data of the A-share market in the Chinese stock market from January 2010 to July 2020. We first examine the explanatory power of the Fama and French five-factor model. We find strong market factor return of market (RM), size factor small minus big (SMB), and value factor high minus low (HML) but weak factor robust minus weak (RMW) and investment factor conservative minus aggressive (CMA). Then, both the Hurst exponent and the momentum factors (MOM) are added to the model to test the improvement of the explanatory power of these two new factors. We find that both the momentum factor and the Hurst exponent factor can effectively improve the explanatory power of the model. The momentum factor captures the short-term trend, but it cannot completely replace the Hurst exponent, which reflects the long memory effect.


2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zhenyu Su ◽  
Paloma Taltavull

Purpose This paper aims to analyse the risk and excess returns of the Spanish real estate investment trusts (S-REITs) using various methods, though focusing primarily on the Fama-French three-factor (FF3) model, over the period from 2007Q3 to 2017Q2. Design/methodology/approach The autoregressive distributed lag model is used for the empirical analysis to test long-term stable relationships between variables. Findings The findings indicate that the FF3 model is suitable for the S-REITs market, better explaining the S-REITs’ returns variation than the traditional single-index capital asset pricing model (CAPM) and the Carhart four-factor model. The empirical evidence is reasonably consistent with the FF3 model; the values for the market, size and value are highly statistically significant over the analysis period, with 68.7% variation in S-REITs’ returns explained by the model. In the long run, the market factor has less explanatory power than the size and value factors; the positive long-term multiplier of the size factor indicates that small S-REIT companies have higher returns, along with higher risk, while the negative multiplier of the value indicator suggests that S-REITs portfolios prefer to allocate growth REITs with low book-to-market ratios. The empirical findings from a modified FF3 model, which additionally incorporates Spain’s gross domestic product (GDP) growth rate, two consumer price index (CPI) macro-factors and three dummy variables, indicates that GDP growth rate and CPI also affect S-REITs’ yields, while investment funds with capital calls have a small influence on S-REITs’ returns. Practical implications The regression results of the standard and extended FF3 model can help researchers understand S-REITs’ risk and return through a general stock pattern. Potential investors are given more information to consider the new Spanish investment vehicle before making a decision. Originality/value The paper uses standard techniques but applies them for the first time to the S-REIT market.


2020 ◽  
Vol 46 (Supplement_1) ◽  
pp. S179-S179
Author(s):  
Mei San Ang ◽  
Gurpreet Rekhi ◽  
Jimmy Lee

Abstract Background The conceptualization of negative symptoms has been refined in the past decades. Two-factor model comprising Motivation and Pleasure (MAP) and Emotional Expressivity (EE), five-factor model representing five domains of negative symptoms and second-order five-factor model incorporating the two-factor and five-factor models (Anhedonia, Asociality and Avolition regressed on MAP; Blunted Affect and Alogia regressed on EE) have been suggested as latent structure of negative symptoms. In most studies, the item “Lack of Normal Distress” in the Brief Negative Symptom Scale (BNSS) did not fit well in factor models. Nevertheless, the reported correlation and item-total correlation of Distress with other negative symptom domains and BNSS items were not negligible. Emotion deficit was also discussed as a part of negative symptoms conceptualization. As a single item may not be sufficient to represent an underlying construct that is potentially abstract and complex, the Schedule for the Deficit Syndrome (SDS) which comprises “Diminished Emotional Range” that is conceptually relevant to the BNSS Distress was employed. The study aimed to reexamine the conceptualization of negative symptoms by examining the model fit of several models when BNSS Distress and SDS Emotion (EMO) were included in the models using confirmatory factor analyses (CFA). Methods Two-hundred and seventy-four schizophrenia outpatients aged 21–65 were assessed on the BNSS and SDS. In the two-factor models, Restricted Affect, Diminished Emotional Range and Poverty of Speech in SDS and all items in BNSS Blunted Affect and Alogia subscales were regressed on EE, Curbing of Interests, Diminished Sense of Purpose and Diminished Social Drive in SDS and all items in BNSS Anhedonia, Asociality and Avolition subscales were regressed on MAP, without EMO, or with EMO regressed on either EE or MAP. Five-factor models and second-order five-factor models were examined, with or without EMO. Lastly, a six-factor model with EMO manifested by the sixth factor and second-order six-factor models in which EMO was regressed on either EE or MAP were tested. Root mean square error of approximation (RMSEA) <0.08, comparative fit index (CFI) >0.95, the Tucker-Lewis Index (TLI) >0.95, and weighted root-mean-square residual (WRMR) <1.0 indicate good model fit. CFAs were conducted using Mplus version 7.4. Results The two-factor models did not yield adequate fit indices. Five-factor model and second-order five-factor model without EMO had good model fit; five-factor model: RMSEA=0.056 (0.044–0.068), CFI=0.996, TFI=0.995, WRMR=0.718; second-order five-factor model: RMSEA=0.049 (0.036–0.061), CFI=0.997, TFI=0.996, WRMR=0.758. When EMO was included as indicator in one of the factors in the five-factor models, only the model in which EMO was regressed on Alogia yielded adequate fit. Similarly, in the second-order five-factor models, adequate fit indices were observed only when EMO was regressed on Alogia and Blunted Affect. The six-factor model fitted the data well, RMSEA=0.053 (0.042–0.064), CFI=0.996, TFI=0.995, WRMR=0.711. Second-order six-factor model with EMO regressed on EE yielded better model fit than MAP, RMSEA=0.050 (0.039–0.061), CFI=0.996, TFI=0.995, WRMR=0.849. Discussion In line with previous studies, five-factor and second-order five-factor models without EMO fitted the data well. When EMO was included, a six-factor model and a second-order six-factor model in which the sixth factor was regressed on EE showed good model fit. Emotion, motivation and behavior are intertwined. Our results showed that diminished emotion may also be one of the components of negative symptoms, which had higher association with EE than MAP.


2020 ◽  
Vol 72 (4) ◽  
pp. 661-684 ◽  
Author(s):  
Philipp Dirkx ◽  
Franziska J. Peter

Abstract We implement the Fama-French five-factor model and enhance it with a momentum factor for the German market using recent monthly data from 2002 to 2019. We construct the factors associated with the market, size, value, profitability, investment, and momentum for the CDAX constituents and examine to what extent this six-factor model captures the return premia in the German market. Our preliminary analysis does not document any significant evidence on the profitability or investment premium. The results on the six-factor model compared with the three-factor model reveal that the additional factors do not add significant explanatory power to the analysis. We conclude that the relevance of the profitability and investment factors within the context of international asset pricing studies cannot be transferred to the country- specific case of the German market.


2020 ◽  
Vol 53 ◽  
pp. 101197
Author(s):  
André Luis Leite ◽  
Marcelo Cabus Klotzle ◽  
Antonio Carlos Figueiredo Pinto ◽  
Claudio Henrique da Silveira Barbedo

1995 ◽  
Vol 9 (4) ◽  
pp. 283-304 ◽  
Author(s):  
Geldolph A. Kohnstamm ◽  
Ivan Mervielde ◽  
Elias Besevegis ◽  
Charles F. Halverson

Because of the impressive replicability of the Five‐Factor Model (FFM) in adult personality psychology, developmental psychologists have recently begun a search for the antecedents of these five adult dimensions in childhood. The FFM originates in rating scales applied to ‘personality words’, notably adjectives, selected from dictionaries. To test the explanatory power of the FFM as a model for individual differences in childhood, we used a different source for the lexicon of personality. Parents of children aged 3, 6, 9, and 12 years were asked simply ‘to describe your child’. The audiotaped interviews were transcribed literally and then coded using an elaborate coding scheme. We here describe data from three of the countries involved in this cross‐cultural project (Holland, Belgium, and Greece). The data are the results of coding free descriptions for a total of 186 3‐year‐olds and 229 9‐year‐olds. These data represent the first phase of a four‐phase project that includes researchers from The Netherlands, Belgium, Greece, Poland, Germany, the USA, and China. Results from this first phase were very similar over the participating countries although there were some interesting culture‐specific differences. In the second phase, questionnaire items based on the free descriptors in each category of the coding scheme will be written by the research teams. Such items will be rated by new samples of parents. Factor analyses will reduce the item pool to about one hundred items. These will then be given to new samples of parents of children of the ages indicated above. In the last phase, the factor structures will be compared across cultures and be analysed for their resemblance to the FFM, as well as other models of the structure of temperament and personality in childhood.


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