scholarly journals The Earnings/Price Risk Factor in Capital Asset Pricing Models

2015 ◽  
Vol 27 (70) ◽  
pp. 67-79 ◽  
Author(s):  
Rafael Falcão Noda ◽  
Roy Martelanc ◽  
Eduardo Kazuo Kayo
Keyword(s):  
Risk Factor ◽  
Asset Pricing ◽  
Factor Model ◽  
Capital Asset Pricing ◽  
Price Ratio ◽  
Cost Of Equity ◽  
Capital Asset ◽  
Pricing Models ◽  
Asset Pricing Models ◽  
Fama And French

This article integrates the ideas from two major lines of research on cost of equity and asset pricing: multi-factor models and ex ante accounting models. The earnings/price ratio is used as a proxy for the ex ante cost of equity, in order to explain realized returns of Brazilian companies within the period from 1995 to 2013. The initial finding was that stocks with high (low) earnings/price ratios have higher (lower) risk-adjusted realized returns, already controlled by the capital asset pricing model's beta. The results show that selecting stocks based on high earnings/price ratios has led to significantly higher risk-adjusted returns in the Brazilian market, with average abnormal returns close to 1.3% per month. We design asset pricing models including an earnings/price risk factor, i.e. high earnings minus low earnings, based on the Fama and French three-factor model. We conclude that such a risk factor is significant to explain returns on portfolios, even when controlled by size and market/book ratios. Models including the high earnings minus low earnings risk factor were better to explain stock returns in Brazil when compared to the capital asset pricing model and to the Fama and French three-factor model, having the lowest number of significant intercepts. These findings may be due to the impact of historically high inflation rates, which reduce the information content of book values, thus making the models based on earnings/price ratios better than those based on market/book ratios. Such results are different from those obtained in more developed markets and the superiority of the earnings/price ratio for asset pricing may also exist in other emerging markets.

Augmenting the intertemporal CAPM with inflation: Further evidence from alternative models

2017 ◽  
Vol 42 (4) ◽  
pp. 653-672 ◽  
Author(s):  
Qi Shi ◽  
Bin Li ◽  
Adrian (Wai Kong) Cheung ◽  
Richard Chung
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Model Fit ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Pricing Models ◽  
Asset Pricing Models ◽  
Intertemporal Capm ◽  
Three Factor ◽  
Fitting Problem

Studies consistently find that inflation is an important augmented factor for intertemporal capital asset pricing models (ICAPMs) when pricing the Fama–French 25 size and book-to-market portfolios. We extend this line of research by investigating two alternative ICAPM models (from Michel; Hahn and Lee) and the three-factor model from Hou et al. We find significant evidence that both ICAPMs and Hou et al.’s three-factor model perform better when augmented with inflation than the original models. The augmented models achieve a good model fit with the fewest factors, thus avoiding or alleviating the over-fitting problem.

scholarly journals Continuous Equilibrium in Affine and Information-Based Capital Asset Pricing Models

2012 ◽  
Author(s):  
Ulrich Horst ◽  
Michael Kupper ◽  
Andrea Macrina ◽  
Christoph Mainberger
Keyword(s):  
Asset Pricing ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Pricing Models ◽  
Asset Pricing Models

Capital Asset Pricing Models

2021 ◽  
pp. 25-52
Author(s):  
James W. Kolari ◽  
Wei Liu ◽  
Jianhua Z. Huang
Keyword(s):  
Asset Pricing ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Pricing Models ◽  
Asset Pricing Models

scholarly journals Continuous equilibrium in affine and information-based capital asset pricing models

2012 ◽  
Vol 9 (4) ◽  
pp. 725-755
Author(s):  
Ulrich Horst ◽  
Michael Kupper ◽  
Andrea Macrina ◽  
Christoph Mainberger
Keyword(s):  
Asset Pricing ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Pricing Models ◽  
Asset Pricing Models

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.

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