The Three-factor Model and China’s Multiple Stock Markets

2019 ◽  
Vol 10 (03) ◽  
pp. 1950016
Author(s):  
Shi-Zhuan Han ◽  
Li Zhang ◽  
Guang-Yu Han ◽  
Lei Wang
Keyword(s):  
Stock Return ◽  
Factor Model ◽  
Explanatory Power ◽  
Scale Factor ◽  
Securities Market ◽  
Security Markets ◽  
Two Factors ◽  
Book To Market Ratio ◽  
Three Factor ◽  
Market Factor

This paper aims at discussing the applicability of the three-factor model in China’s multiple security markets. The monthly returns of Shenzhen Main Board Market, Shanghai Stock Market, GEM Securities Market and Small and Medium Board Securities Market from January 2012 to December 2016 are selected as samples. The following conclusions are drawn: the three-factor model is applicable in Shenzhen Main Board Market, that is, the change of stock return is proportional to market factor, book-to-market ratio factor, and inversely proportional to scale factor. Moreover, in terms of the explanatory power of the change of stock return, the market factor is the highest, the scale factor is the second, and the book-to-market ratio factor is the lowest. But in the other three markets, the two-factors model that excludes the ratio of book market value can explain the change of stock return better. In addition, the explanatory power of market factor is better than scale factor.

TESTS OF THE CAPITAL ASSET PRICES AND THE FAMA AND FRENCH THREE-FACTOR MODEL FOR HANOI SECURITIES MARKET

2010 ◽  
Vol 13 (4) ◽  
pp. 15-22
Author(s):  
Hieu Quang Kim ◽  
Hung Thanh Nguyen
Keyword(s):  
Asset Prices ◽  
Factor Model ◽  
Securities Market ◽  
Rate Of Return ◽  
Size Factor ◽  
Capital Asset ◽  
Fama And French ◽  
The One ◽  
Three Factor ◽  
Market Factor

This study tests the Fama-French three-factor model for Hanoi securities market, HASTC to investigate the influences of market factor, size factor and value factor on the rate of return of portfolios. The data for study was collected from 1st July, 2006 to 15th May, 2009. The study found that the three-factor model has high capability to explain the changing of portfolio’s rate of return and the market factor is the one that has the strongest effect on portfolios’ rate of return.

scholarly journals Choosing Factors for the Vietnamese Stock Market

2021 ◽  
Vol 14 (3) ◽  
pp. 96
Author(s):  
Nina Ryan ◽  
Xinfeng Ruan ◽  
Jin E. Zhang ◽  
Jing A. Zhang
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Factor Models ◽  
Marginal Contribution ◽  
Return On Equity ◽  
Factor Modeling ◽  
Three Factor ◽  
Better Than

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.

Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zhenyu Su ◽  
Paloma Taltavull
Keyword(s):  
Growth Rate ◽  
Factor Model ◽  
Explanatory Power ◽  
Gdp Growth ◽  
Size Factor ◽  
Content Type ◽  
Gdp Growth Rate ◽  
Fama And French ◽  
Three Factor

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.

Factor Structure of the New Environmental Paradigm Scale: Evidence from an Urban Sample in Southern California

2004 ◽  
Vol 94 (1) ◽  
pp. 125-130 ◽  
Author(s):  
Chang-Ho C. Ji
Keyword(s):  
Factor Structure ◽  
Southern California ◽  
Factor Model ◽  
Factor Models ◽  
Two Factors ◽  
Urban Sample ◽  
Original Scale ◽  
The One ◽  
Three Factor ◽  
New Environmental Paradigm

This study examined the factor structure of the New Environmental Paradigm Scale using responses from 261 urban subjects from southern California. The analysis yielded findings inconsistent with many previous studies of the original scale. This study supported an 8-item two-factor model of the scale rather than the one-factor and three-factor models proposed earlier. A subsequent validation study provides evidence for this short form's validity, as the two factors were predictive of commitment to preservation of nature.

scholarly journals Empirical Research on the Fama-French Three-Factor Model and a Sentiment-Related Four-Factor Model in the Chinese Blockchain Industry

2020 ◽  
Vol 12 (12) ◽  
pp. 5170 ◽  
Author(s):  
Ziyang Ji ◽  
Victor Chang ◽  
Hao Lan ◽  
Ching-Hsien Robert Hsu ◽  
Raul Valverde
Keyword(s):  
Stock Returns ◽  
Behavioral Finance ◽  
Factor Model ◽  
Explanatory Power ◽  
Online Information ◽  
Chinese Stock Market ◽  
Blockchain Technology ◽  
Fast Development ◽  
Independent Variable ◽  
Three Factor

As one of the most significant components of financial technology (FinTech), blockchain technology arouses the interests of numerous investors in China, and the number of companies engaged in this field rises rapidly. The emotion of investors has an effect on stock returns, which is a hot topic in behavioral finance. Blockchain is an essential part of FinTech, and with the fast development of this technology, investors’ sentiment varies as well. The online information that directly reflects investors’ mood could be utilized for mining and quantifying to construct a sentiment index. For a better understanding of how well some factors adequately explain the return of stocks related to blockchain companies in the Chinese stock market, the Fama-French three-factor model (FFTFM) will be introduced in this paper. Furthermore, sentiment could be a new independent variable to enhance the explanatory power of the FFTFM. A comparison between those two models reveals that the sentiment factor could raise the explanatory power. The results also indicate that the Chinses blockchain industry does not own the size effect and book-to-market effect.

scholarly journals Empirical Test of Single Factor and Multi-Factor Asset Pricing Models: Evidence from Non Financial Firms on the Ghana Stock Exchange (GSE)

2015 ◽  
Vol 8 (1) ◽  
pp. 99
Author(s):  
Prince Acheampong ◽  
Sydney Kwesi Swanzy
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Stock Exchange ◽  
Explanatory Power ◽  
Pricing Model ◽  
Asset Pricing Model ◽  
Financial Firms ◽  
Portfolio Returns ◽  
Ghana Stock Exchange ◽  
Three Factor

<p>This paper examines the explanatory power of a uni-factor asset pricing model (CAPM) against a multi-factor model (The Fama-French three factor model) in explaining excess portfolio returns on non-financial firms on the Ghana Stock Exchange (GSE). Data covering the period January 2002 to December 2011 were used. A six Size- Book-to-Market (BTM) ratio portfolios were formed and used for the analysis. The paper revealed that, a uni-factor model like the (CAPM) could not predict satisfactorily, the excess portfolio returns on the Ghana Stock Exchange. By using the multi-factor asset pricing model, that is, the Fama-French Three Factor Model, excess portfolio returns were better explained. It is then conclusive enough that, the multi-factor asset pricing model introduced by Fama and French (1992) was a better asset pricing model to explain excess portfolio returns on the Ghana Stock Exchange than the Capital Assets Pricing Model (CAPM) and that there exist the firm size and BTM effects on the Ghanaian Stock market.</p>

The role of efficiency in capital asset pricing: a research on Nasdaq technology sector

2020 ◽  
Vol 46 (11) ◽  
pp. 1479-1493
Author(s):  
Hakan Aygoren ◽  
Emrah Balkan
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Factor Model ◽  
Explanatory Power ◽  
Efficiency Factor ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Content Type ◽  
The Impact ◽  
Three Factor

PurposeThe aim of this study is to investigate the role of efficiency in capital asset pricing. The paper explores the impact of a four-factor model that involves an efficiency factor on the returns of Nasdaq technology firms.Design/methodology/approachThe paper relies on data of 147 firms from July 2007 to June 2017 to examine the impact of efficiency on stock returns. The performances of the capital asset pricing model (CAPM), Fama–French three-factor model and the proposed four-factor model are evaluated based on the time series regression method. The parameters such as the GRS F-statistic and adjusted R² are used to compare the relative performances of all models.FindingsThe results show that all factors of the models are found to be valid in asset pricing. Also, the paper provides evidence that the explanatory power of the proposed four-factor model outperforms the explanatory power of the CAPM and Fama–French three-factor model.Originality/valueUnlike most asset pricing studies, this paper presents a new asset pricing model by adding the efficiency factor to the Fama–French three-factor model. It is documented that the efficiency factor increases the predictive ability of stock returns. Evidence implies that investors consider efficiency as one of the main factors in pricing their assets.

scholarly journals Trading Volume and Fama-French Three Factor Model on Excess Return. Empirical Evidence from Nairobi Security Exchange

2018 ◽  
Vol 14 (22) ◽  
pp. 276
Author(s):  
Opuodho Gordon Ochere ◽  
Nasieku M. Tabitha ◽  
Olweny Tobias O
Keyword(s):  
Trading Volume ◽  
Quantitative Research ◽  
Factor Model ◽  
Explanatory Power ◽  
Unit Root Test ◽  
Secondary Data ◽  
Excess Return ◽  
Size Premium ◽  
Market Premium ◽  
Three Factor

The main objective of this paper is to examine the effect of Trading Volume on excess return using the Fama-French three factor model of listed companies in Kenya. The research study employed a Quantitative research design to analyses the effect of Trading Volume on excess returns in Nairobi Security Exchange (NSE) during the period 2006 to 2015. Secondary data was used for this study. The study utilized descriptive statistics, correlation, unit root test, Heteroscedasticity, and Autocorrelation test as diagnostic tests. The regression results revealed that Market premium and Value premium (HML) and Trading Volume have a high explanatory power while the size premium (SMB) has a low explanatory power.

scholarly journals Modelos de Precificação de Ativos e o Efeito Liquidez: Evidências Empíricas no Mercado Acionário Brasileiro

2011 ◽  
Vol 9 (3) ◽  
pp. 383 ◽  
Author(s):  
Márcio André Veras Machado ◽  
Otávio Ribeiro de Medeiros
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Liquidity Premium ◽  
Pricing Models ◽  
Portfolio Returns ◽  
Asset Pricing Models ◽  
Three Factor

This paper is aims to analyze whether a liquidity premium exists in the Brazilian stock market. As a second goal, we include liquidity as an extra risk factor in asset pricing models and test whether this factor is priced and whether stock returns were explained not only by systematic risk, as proposed by the CAPM, by Fama and French’s (1993) three-factor model, and by Carhart’s (1997) momentum-factor model, but also by liquidity, as suggested by Amihud and Mendelson (1986). To achieve this, we used stock portfolios and five measures of liquidity. Among the asset pricing models tested, the CAPM was the least capable of explaining returns. We found that the inclusion of size and book-to-market factors in the CAPM, a momentum factor in the three-factor model, and a liquidity factor in the four-factor model improve their explanatory power of portfolio returns. In addition, we found that the five-factor model is marginally superior to the other asset pricing models tested.

scholarly journals A Comparative Analysis of Four-Factor Model and Three-Factor Model in the Nigerian Stock Market

2017 ◽  
Vol 8 (4) ◽  
pp. 38
Author(s):  
Esther Ikavbo Evbayiro-Osagie ◽  
Ifuero Osad Osamwonyi
Keyword(s):  
Factor Model ◽  
Stock Exchange ◽  
Explanatory Power ◽  
Expected Returns ◽  
Momentum Effect ◽  
Cross Sectional ◽  
Operational Strategies ◽  
Portfolio Returns ◽  
Fund Portfolio ◽  
Three Factor

The study investigates if the three-factor model explains variation in expected returns of stocks on the Nigerian Stock Exchange (NSE); and also ascertains if the four-factor model explains the variation in expected returns of stocks on the NSE better than the three-factor model. The study use a sample size of 139 stocks with continuous trading on the NSE for the period January 2007 to December 2014 to construct 10 portfolios on the bases of size, value and returns. By means of multiple OLS regression analysis method with the aid of StataC13 software the analysis was done. The empirical analysis reveals that the three-factor model explains cross sectional variation in expected returns in the NSE. Also, the study shows that the size effect, value effect as well as momentum effect is present in the market. Comparing the four-factor model with three-factor model, shows that the four-factor model have better explanatory power than the three-factor model in explaining returns in the Market. It is recommended that equity investors, fund/portfolio managers and investment advisers should embed in their operational strategies the explanatory power of market beta, size and value as well as momentum on stock/portfolio returns to enable them build up trading strategies that minimize loss and maximize returns. Market regulators and policy makers should ensure appropriate measures are in place to improve market viability and liquidity in order to enhance the depth and breathe of the market.

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