Expectations and Stock Market in Nepal

2021 ◽  
pp. 097226292110390
Author(s):  
Roshan Sedhain ◽  
S. Shijin
Keyword(s):  
Stock Market ◽  
Rational Expectation ◽  
Factor Model ◽  
Panel Data Analysis ◽  
Investment Decision ◽  
Size Factor ◽  
The Past ◽  
Market Return ◽  
Expectation Hypothesis ◽  
Three Factor

This study examines the presence of both rational and adaptive expectations hypotheses in the Nepalese stock market by employing panel data analysis under the Fama–French three-factor model. Under the adaptive expectation hypothesis, the book to market equity is an essential determinant in the Nepalese stock market, and only the past 2-year information can explain investment decisions. Likewise, under the rational expectation hypothesis, the value factor, size factor and excess market return are important determinants during the investment decision. The past 3 years of information and the next 3 years of future information are necessary to estimate stock market return under rational expectation. Thus, this study reveals that the investment decision in the Nepalese stock market depends on the investor’s choice and preference upon the factors that are incorporated in the Fama–French three-factor model and the types of expectations in which the investors mostly believe.

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.

scholarly journals Is idiosyncratic risk ignored in asset pricing: Sri Lankan evidence?

2019 ◽  
Vol 5 (1) ◽  
Author(s):  
Moinak Maiti
Keyword(s):  
Factor Model ◽  
Stock Exchange ◽  
Investment Decision ◽  
Idiosyncratic Risk ◽  
Idiosyncratic Volatility ◽  
Sri Lankan ◽  
Cross Sectional ◽  
Volatility Risk ◽  
And Performance ◽  
Three Factor

AbstractThe present study focused on one of the important South Asian nations—Sri Lanka—to examine the role of idiosyncratic volatility in asset prices. A four-factor model with idiosyncratic volatility was designed for capturing the market, size, value and idiosyncratic risk yields better than Fama and French’s (J Financ Econ 33:3–56, 1993) three-factor model and performance of the model. Fama–MacBeth’s cross-sectional regression, residual graphs and GRS test all confirm the superiority of four-factor model over 2 three-factor models. For all MC- and IVOL-based portfolios, idiosyncratic volatility is negatively related to the expected returns and positively related for all PB-based portfolios. Finally, study findings confirm that there is a high importance for idiosyncratic volatility risk factor while considering investment decision in Colombo stock exchange. Hence, investor should compensate for holding such risk factors in the portfolio.

scholarly journals The Inter-Firm Value Effect in the Qatar Stock Market: 2005-2014

2015 ◽  
Vol 11 (1) ◽  
pp. 189
Author(s):  
Omar Gharaibeh
Keyword(s):  
Stock Market ◽  
Firm Value ◽  
Factor Model ◽  
Two Measures ◽  
Value Effect ◽  
Abnormal Profits ◽  
Market Strategies ◽  
Three Factor

<p>This paper examines whether there is evidence of an inter-firm value in the returns of Qatar firms. The long-term return contrarian and book-to-market strategies are approaches commonly used to test for value effect. This study documents statistically significant abnormal profits of an inter-firm value effect with two measures. The long-term return contrarian and BE/ME strategies provide significant abnormal raw returns of 1.17% and 1.64% per month, respectively. Although each of the value strategies earns significant unadjusted profits, these profits can be explained by the Fama-French three-factor model.</p>

The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds

2017 ◽  
Vol 13 (3) ◽  
pp. 513-528 ◽  
Author(s):  
Karen Paul
Keyword(s):  
Business Cycle ◽  
Financial Performance ◽  
Mutual Funds ◽  
Factor Model ◽  
Social Performance ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investing ◽  
Market Return ◽  
Three Factor

Purpose This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER). Design/methodology/approach A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies. Findings The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion. Research limitations/implications These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction. Practical implications These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance. Social implications This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction. Originality/value Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.

Robustness of the Carhart four-factor and the Fama-French three-factor models on the South African stock market

2015 ◽  
Vol 14 (4) ◽  
pp. 413-430 ◽  
Author(s):  
Nicholas Addai Boamah
Keyword(s):  
Stock Market ◽  
South African ◽  
Design Methodology ◽  
The South ◽  
Gross Domestic Product Growth ◽  
Content Type ◽  
The Past ◽  
Three Factor ◽  
Future Growth ◽  
French Model

Purpose – The purpose of this study is to explore the applicability of the Fama–French and Carhart models on the South African stock market (SASM). It examines the ability of the models to capture size, book-to-market (BM) and momentum effects on the SASM. The paper, additionally, explores the ability of the Fama–French–Carhart factors to predict the future growth of the South African economy. Design/methodology/approach – The paper relies on data of 848 firms from January 1996 to April 2012 to examine the size, BM and momentum effects on the SASM. The paper constructs the test assets from a 3 × 3 sort on size and BM and a 3 × 3 sort on size and momentum. The paper estimates momentum as the past six-months’ cumulative return. The momentum portfolios are monthly rebalanced. Additionally, the size and BM portfolios are formed annually at the end of each June. Findings – Evidence is provided that size, BM and momentum effects exist on the SASM; also, the small- and high-BM firm portfolios, respectively, appear riskier than the big- and low-BM firm portfolios. The paper provides evidence of past winners outperforming past losers aside from the small-firm group. Additionally, the models only partially capture the size and value effects on the SASM. The Carhart model partly captures the momentum effects, but the Fama–French model is unable to describe the returns to the momentum-sorted portfolios. The evidence shows that the models’ factors predict future gross domestic product growth. Originality/value – The models do not fully describe returns on the SASM; any application of the models on the SASM should be done with caution. The Carhart model better describes returns than the Fama–French model on the SASM. The Fama–French–Carhart factors may relate to the underlying economic risk of the South African economy.

scholarly journals MULTIFACTOR ASSET PRICING ANALYSIS OF THE BALTIC STOCK MARKET

Ekonomika ◽  
2010 ◽  
Vol 89 (4) ◽  
pp. 85-95 ◽  
Author(s):  
Raimonds Lieksnis
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Factor Model ◽  
Stock Market Index ◽  
Cross Sectional ◽  
Economic Significance ◽  
Market Index ◽  
Fama And French ◽  
The Baltic ◽  
Three Factor

This study investigates whether the Fama–French three-factor asset pricing model is applicable for explaining cross-sectional returns of stocks listed in the Baltic stock exchanges. Findings confirm the validity and economic significance of the three-factor model for the Baltic stock market: only investors who chose to invest in value stocks during the reference period achieved positive returns by matching or beating the returns of the stock market index. The monthly returns of 8 Latvian, 13 Estonian and 27 Lithuanian company stocks are analyzed for the time period from June 2002 till February 2010 by the methodology presented in Davis, Fama, and French (2000). Cross-sectional multivariate regression is calculated with stock portfolios representing the book-to-market and capitalization of companies as independent variables along with the stock market index. The study concludes that these three factors in the three-factor model are statistically significant, but, in line with earlier studies, regression intercepts are significantly different from zero and the model is not statistically confirmed.p>

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 Neglected Firm Effect and Stylized Equity Returns: Evidence from Pakistan

2015 ◽  
Vol 50 ◽  
pp. 100-106 ◽  
Author(s):  
Adnan Akhter ◽  
Shahzad Butt ◽  
Shumaila Chaudhary ◽  
Junaid Kiyani
Keyword(s):  
Stock Market ◽  
Factor Model ◽  
Investment Decision ◽  
Explanatory Power ◽  
Equity Returns ◽  
Analyst Coverage ◽  
Efficient Resource ◽  
The Usa ◽  
Fama And French ◽  
Firm Effect

The neglected stock effect is the phenomenon where less researched stock earns more return than that predicted by the traditional CAPM. The aim of this study is to reveal the bonding between neglected stock premium and equity returns in the stock market of Pakistan by using Fama and French (1992 & 1993) methodology. This study is unique with respect to Pakistan that checks the relationship among neglected stock premium and equity returns on a sample of 200 stocks listed the largest stock market of Pakistan KSE. It is corroborated that neglected firm effect is present in market and priced by the market. This manifests that those stocks which are neglected, less researched and got less analyst coverage earn higher return in comparison to popular stocks that got more analyst coverage. The results also revealed that two factor model has greater explanatory power in comparison to Traditional CAPM. The results of this study are in line with the findings of Arbel and Strebel (1980) and Bertin, Michayluk and Prather (2008) for the USA equity market. Lower research analyst coverage increases the uncertainty for investor that how the company will perform in the future, which ultimately increase the risk factor and so the demand of return from the investors. The decision makers must consider this anomaly while making decisions regarding financing, investing etc. This study will facilitate the investors in taking effective investment decision and for efficient resource allocation.

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