Size premium, value premium and market timing: evidence from an emerging economy

Purpose This study aims to investigate the market timing strategy in different market conditions (i.e. up, down, normal and in-financial-crisis situation) in the emerging market of Pakistan over the period 1995 to 2015. Furthermore, this study tests the validity of the capital asset pricing model (CAPM) and Fama and French model. Design/methodology/approach This study considers monthly stock returns of 167 firms and constructs six different portfolios on the basis of different size and book to market ratio. The Treynor and Mazuy model is used to capture the market timing strategy. Findings The results indicate evidence of the market timing in normal market conditions. However, there is less supportive evidence of market timing in up-market, down-market and in-financial-crisis situations. This study also confirms the validity of the capital asset pricing model and Fama and French three-factor model with strong support of value premium and size premium in the stock market. Practical implications The findings of this study are helpful to companies in estimating the cost of issuing equity more accurately. The investors can use market timing to make their investment in a more better and profitable manner. Originality/value Unlike other previous studies, this study considers an extended period to test the validity of the capital asset pricing model and Fama and French model. In addition, this study is novel in testing the marketing timing of the firms in the context of emerging economy of Pakistan.

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A TEST OF THE FAMA-FRENCH FIVE FACTOR MODEL IN COMPARISON TO THE CAPITAL ASSET PRICING MODEL AT THE LUSAKA SECURITIES EXCHANGE

International Journal of Finance and Accounting ◽

10.47604/ijfa.684 ◽

2018 ◽

Vol 3 (1) ◽

pp. 35

Author(s):

Nsama Musawa ◽

Prof. Sumbye Kapena ◽

Dr . Chanda Shikaputo

Keyword(s):

Asset Pricing ◽

Stock Returns ◽

Factor Model ◽

Five Factor Model ◽

Capital Asset Pricing Model ◽

Capital Asset Pricing ◽

Pricing Model ◽

Capital Asset ◽

Asset Pricing Model ◽

Fama And French

Purpose: The capital asset pricing model (CAPM) is one of the basic models in the security price analysis.Many asset pricing models have been developed to improve the CAPM.Among such models is the latest Fama and French five factor model which is being empirically tested in various stock markets. This study tested the five factor model in comparison to the capital asset pricing model. Testing the Fama and French Five factor model in comparison to the CAPM was important because the CAPM is widely taken to be the basic model in the security price analysis. Methodology: The Fama and French methodology was used to test the data from an emerging market, the Lusaka Securities Exchange. A deductive, quantitative research design and secondary data from the Lusaka Securities Exchange was used. Data was analyzed using multiple regression. Results: The results indicate that the Five Factor model is better than the CAPM in capturing variation in the stock returns. The Adjusted R-squared for the five factor model from all individual portfolio sorting was 0.9, while that for the CAPM was 0.13 Unique contribution to theory, practice and policy: This study has contributed to theory in that it has added a voice to the ongoing debt on the suitability of the new Fama and French Five Factor model which is at the cutting hedge in finance theory.Further the study is from developing capital market. Keywords:, CAPM, Stock returns, Fama and French five factor model

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Hotel Business Inn

Emerald Emerging Markets Case Studies ◽

10.1108/eemcs-11-2018-0254 ◽

2019 ◽

Vol 9 (4) ◽

pp. 1-16

Author(s):

Eduardo Luis Montiel ◽

Octavio Martinez

Keyword(s):

Asset Pricing ◽

Learning Outcomes ◽

Capital Asset Pricing Model ◽

Capital Asset Pricing ◽

Pricing Model ◽

Capital Asset ◽

Content Type ◽

Asset Pricing Model ◽

Academic Level ◽

Para Determinar

Learning outcomes Revisar el CAPM como metodología para estimar el costo de los recursos propios en una inversión e ilustrar, mediante un ejemplo latinoamericano, los retos de aplicar el modelo fuera de Estados Unidos. Presentar diferentes alternativas para estimar el riesgo país con una discusión de sus pros y contras. Introducir complejidades adicionales en el estimado del costo de los recursos propios contrastando la perspectiva de un inversionista local no diversificado con el de una multinacional que opera en 39 países Case overview/synopsis El caso Hotel Business Inn se enfoca en la estimación del riesgo país para determinar el costo de los recursos propios en una inversión fuera de los Estados Unidos. La teoría financiera indica que este costo debería determinarse en base al riesgo no diversificable de la inversión y para obtener este estimado, los libros de texto recomiendan el CAPM (Capital Asset Pricing Model). Los estimados del CAPM, sin embargo, generalmente se basan en el mercado financiero de Estados Unidos. Para aplicar este modelo en otros países, el consenso es que se debe ajustar por el riesgo país de la inversión pero existe un debate sobre cómo hacer este ajuste. El caso presenta las alternativas más utilizadas e introduce complejidades adicionales en el entorno de un país latinoamericano. Complexity academic level El caso está diseñado para cursos de Finanzas Corporativas, Valoración o Finanzas Internacionales tanto para estudiantes de MBA como en programas de formación ejecutiva. Supplementary materials Teaching Notes are available for educators only. Please contact your library to gain login details or email [email protected] to request teaching notes. Subject code CSS 1: Contabilidad y Finanzas

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