scholarly journals Empirical Testing of the Five-Factor Model of Fama and French in Indonesia as an Emerging Capital Market

2020 ◽  
Vol 3 (1) ◽  
Author(s):  
Mustaruddin Saleh ◽  
Keyword(s):  
Capital Market ◽  
Factor Model ◽  
Five Factor Model ◽  
Empirical Testing ◽  
Fama And French

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
Keyword(s):  
Interest Rates ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Factor Models ◽  
Final Conclusion ◽  
Economic Cycle ◽  
Explanatory Factors ◽  
Nominal Interest Rates ◽  
Fama And French

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.

scholarly journals Interest rate sensitivity of spanish companies. An extension of the Fama-French five-factor model

2018 ◽  
Vol 68 (4) ◽  
pp. 617-638 ◽  
Author(s):  
Francisco Jareño ◽  
María de la O González ◽  
Marta Tolentino ◽  
Sara Rodríguez
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Rate Sensitivity ◽  
Share Prices ◽  
Explanatory Variables ◽  
Fama And French ◽  
Recent Financial Crisis

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.

Evaluating alternative performance benchmarks for Indian mutual fund industry

2017 ◽  
Vol 14 (2) ◽  
pp. 222-250 ◽  
Author(s):  
Sanjay Sehgal ◽  
Sonal Babbar
Keyword(s):  
Asset Pricing ◽  
Mutual Fund ◽  
Factor Model ◽  
Five Factor Model ◽  
Content Type ◽  
Asset Pricing Model ◽  
Fund Managers ◽  
Asset Pricing Models ◽  
Performance Benchmarks ◽  
Fama And French

Purpose The purpose of this paper is to perform a relative assessment of performance benchmarks based on alternative asset pricing models to evaluate performance of mutual funds and suggest the best approach in Indian context. Design/methodology/approach Sample of 237 open-ended Indian equity (growth) schemes from April 2003 to March 2013 is used. Both unconditional and conditional versions of eight performance models are employed, namely, Jensen (1968) measure, three-moment asset pricing model, four-moment asset pricing model, Fama and French (1993) three-factor model, Carhart (1997) four-factor model, Elton et al. (1999) five-index model, Fama and French (2015) five-factor model and firm quality five-factor model. Findings Conditional version of Carhart (1997) model is found to be the most appropriate performance benchmark in the Indian context. Success of conditional models over unconditional models highlights that fund managers dynamically manage their portfolios. Practical implications A significant α generated over and above the return estimated using Carhart’s (1997) model reflects true stock-picking skills of fund managers and it is, therefore, worth paying an active management fee. Stock exchanges and credit rating agencies in India should construct indices incorporating size, value and momentum factors to be used for purpose of benchmarking. Originality/value The study adds new evidence as to applicability of established asset pricing models as performance benchmarks in emerging market India. It examines role of higher order moments in explaining mutual fund returns which is an under researched area.

scholarly journals COMPREHENSIVE ANALYSIS OF REGULATORY IMPACTS ON PERFORMANCE OF SLOVAK PENSION FUNDS

2021 ◽  
Vol 22 (3) ◽  
pp. 735-756
Author(s):  
Mário Papík ◽  
Lenka Papíková
Keyword(s):  
Pension System ◽  
Factor Model ◽  
Five Factor Model ◽  
Pension Funds ◽  
Private Pension ◽  
Government Interventions ◽  
Regulatory Interventions ◽  
Market Factors ◽  
Fama And French ◽  
Sustainability Challenges

Standard pay-as-you-go pension system is facing long-term and short-term sustainability challenges in several countries. Possible replacement of standard pension system might be in a form of private pension savings. Private pension savings are meaningful only if they provide sufficiently high returns. The aim of this manuscript is to analyse performance of Slovak pension funds and factors impacting this performance, especially government interventions. This manuscript is focused on enhanced Carhart four-factor model, Bollen and Busse four-factor model, and Fama and French five-factor model based on 23 pension funds from Slovakia from period starting September 2012 and ending September 2019. These models have been extended by other variables describing bond market factors and impact of regulatory interventions on performance of pension funds. Results of analysis have proved that legislative interventions have impact on performance of analysed pension funds. Each legislative intervention has caused average daily yield to decrease by about 0.01% to 0.03%. Findings described in this manuscript can contribute to better knowledge of pension funds for both contributors who need to decide whether to participate in the second pillar or not, as well as for regulators who develop legislation measurements in this area.

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

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

Who is King in Factor Zoo? Case of the Chinese Stock Market

2020 ◽  
Vol 14 (2) ◽  
pp. 77-102
Author(s):  
Simon M. S. So
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Investment Strategy ◽  
Capital Asset Pricing ◽  
Chinese Stock Market ◽  
Fama And French ◽  
Three Factor

This paper aimed to evaluate and compare individual performances and contributions of seven well-known factors, selected from four widely cited asset pricing models: (1) the capital asset pricing model of Sharpe (1964), (2) the three-factor model of Fama and French (1993) the augmented four-factor model of Carhart (1997), (3) the five-factor model of Fama and French (2015), and (4) the illiquidity model of Amihud, et al. (2015) in capturing the time-series variation of stock returns and absorbing the 12 prominent anomalies. The anomalies were constructed by forming long-short portfolios, and regressions were run to examine their monthly returns from 2000 to 2019. We found that there is no definite and absolute “king” in the factor zoo in the Chinese stock market, and size is the relative “king” that can absorb the maximum number of anomalies. Evidence also indicates that the three-factor model of Fama and French may still play an important role in pricing assets in the Chinese stock market. The results can provide investors with a reliable risk factor and help investors form an effective investment strategy. This paper contributes to asset pricing literature in the Chinese market.G1

scholarly journals Applicability of Investment and Profitability Effects in Asset Pricing Models

2017 ◽  
Vol 21 (6) ◽  
pp. 851-874 ◽  
Author(s):  
Márcio André Veras Machado ◽  
Robert Faff ◽  
Suelle Cariele de Souza e Silva
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Poor Performance ◽  
Pricing Models ◽  
Asset Pricing Models ◽  
The Poor ◽  
Fama And French

Abstract This study aims to investigate whether investment and profitability are priced and if they partially explain the variations of stock returns in the Brazilian stock market, according to the Fama and French's (2015) five-factor model. By using time series and cross-section regression, we found that book-to-market, momentum and liquidity are associated with stock returns whereas investment and profitability were not significant. We also found that there is no investment premium in Brazil. Therefore, motivated by the importance of B/M, momentum and liquidity to the Brazilian stock market, as well as by the poor performance of profitability and investment, we document that Keene and Peterson's (2007) five-factor model is superior to all other models, especially the five-factor model by Fama and French (2015).

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