scholarly journals Size, Value and Momentum in Pakistan Equity Market: Size and Liquidity Exposures

2018 ◽  
Vol III (I) ◽  
pp. 376-394 ◽  
Author(s):  
Romana Bangash ◽  
Faisal Khan ◽  
Zohra Jabeen
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Stock Exchange ◽  
Equity Market ◽  
Future Research ◽  
Momentum Strategy ◽  
Monthly Data ◽  
Average Value ◽  
Asset Pricing Models ◽  
Fama And French

The study inspects the size and liquidity pattern in Pakistan equity market. Sample size contains 278 non-financial firm's monthly data listed on Pakistan Stock Exchange (PSX) from 2001 to 2012. This study uses three asset pricing models (eq.5), (eq.6) and (eq.7). Four factors asset pricing model estimates that momentum factor is positively and negatively linked with winner and loser stocks, both in size and liquidity patterns. Although it is observed that the presence of size and liquidity does not affect the coefficient results but average value of momentum premium in larger in liquidity than size pattern. Further, the study reveals high average stock returns on momentum strategy in liquidity pattern than size that is 8.05% Vs 6.67%, respectively. Results of this study contradicts Fama and French (2012) who concluded that size pattern in momentum factor outperform the equity market. But this study conclude that liquidity pattern outperforms the size pattern in momentum factor. This study raises the question that should investors and academicians consider size or liquidity pattern in momentum factor for high returns and future research?

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).

scholarly journals Neoclassical Asset Pricing Tests in Sri Lanka: A Structural Empirical Review

2020 ◽  
Vol 12 (2) ◽  
pp. 39
Author(s):  
Neelangie Sulochana Nanayakkara ◽  
P. D. Nimal ◽  
Y. K. Weerakoon
Keyword(s):  
Asset Pricing ◽  
Sri Lanka ◽  
Stock Returns ◽  
Pricing Models ◽  
Cross Sectional ◽  
Holistic View ◽  
Asset Pricing Models ◽  
Fama And French ◽  
The Impact ◽  
Empirical Investigations

Neoclassical asset pricing models try to explain cross sectional variation in stock returns. This study critically reviews the findings of empirical investigations on neoclassical asset pricing models in the Colombo Stock Exchange (CSE), Sri Lanka. The study uses the structural empirical review (SER) methodology to capture a holistic view of empirical investigations carried out in the CSE from the year 1997 to 2017.The pioneering Capital Asset Pricing Model (CAPM) (Sharpe, 1964; Lintner, 1965: Black, 1972) (SLB) states that market betas of stocks are sufficient to explain the cross sectional variation of stock returns. Alternatively there are multifactor models (Ross, 1976; Chen, 1986; Fama and French, 1993, 2015; Cahart, 1997) that state stock returns are driven by multiple risk factors. Similar to other markets the findings on the SLB model are not consistent in the CSE. The Fama and French (1993) and the Cahart (1997) models are supported in the CSE which is consistent with other markets, but the explanatory powers of them are substantially low in the Sri Lankan context. Contrasting the findings of a significant impact of macroeconomic factors on stock returns in developed markets, the impact of them in the CSE are temporary.The overall findings of the applicability of neoclassical asset pricing models in the CSE are inconsistent and inconclusive and the study identifies two reasons that may have contributed to such results. Firstly, it recognises that the inherent limitations of neoclassical asset pricing models may have affected the findings in the CSE. Secondly, it supports the argument that neoclassical models, as they are may not be applicable in emerging or frontier markets, thus they may need to be augmented with characteristics of such markets to make them more applicable.

scholarly journals CORPORATE GOVERNANCE AND CAPITAL ASSET PRICING MODELS

2020 ◽  
Vol 21 (2) ◽  
Author(s):  
ALYNE C. S. GANZ ◽  
JOSIANE O. SCHLOTEFELDT ◽  
MOACIR M. RODRIGUES JUNIOR
Keyword(s):  
Corporate Governance ◽  
Asset Pricing ◽  
Stock Returns ◽  
Negative Impact ◽  
Research Area ◽  
Financial Assets ◽  
Pricing Models ◽  
French Studies ◽  
Asset Pricing Models ◽  
Fama And French

ABSTRACT Purpose: This study aimed to analyze the inclusion of corporate governance in the explanation of Fama and French’s (1993, 2015) three and five-factor asset pricing models. Originality/value: This research differs from other works by inserting corporate governance as an explanatory factor in the pricing model of financial assets. Thus, it is intended to contribute to the research area by trying to identify previously unexplored characteristics, as the proposed method, that helps and adds explanation to the pricing models of financial assets, thus helping investors and professionals in the financial area. Design/methodology/approach: The research sample consists of 387 companies listed in B3, in the period between 2012 and 2016. For data analysis, panel data regressions were used according to the methodology of Fama and French studies (1993, 2015) through the Stata software. Findings: The results indicate that corporate governance has a negative impact on the return of the actions of small companies with lower levels of corporate governance and that the reverse is true for large companies with high levels of governance. Other variables were also found to be impacting on stock returns, such as market value, book-to-market, profitability, and investments.

scholarly journals THE FOUR-FACTOR MODEL AND STOCK RETURNS IN BANGLADESH

2021 ◽  
Vol 6 (2) ◽  
pp. 133-149
Author(s):  
Muhammad Saifuddin Khan ◽  
Md. Miad Uddin Fahim
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Explanatory Power ◽  
Jel Classification ◽  
Expected Return ◽  
Market Factors ◽  
Fama And French ◽  
Three Factor

For determining the expected return, and asset pricing, CAPM (Capital asset pricing model) is being used dominantly grounded on only the market (systematic) risk-factor though several anomalies have been revealed in this model. Fama and French (1993) have addressed those anomalies and developed the Three-factor model by combining size and value factors besides market factors. Over time, Carhart (1997) has further developed a model addressing momentum factor besides the three factors of Fama and French (1993) which is known as the Carhart four-factor model. Though several kinds of research have been conducted on the CAPM and three-factor model, little works have been accompanied by the Carhart four-factor model in an evolving market like Bangladesh. The goal of this work is to examine the validity of the Carhart four-factor model and examine the loftier explanatory power in Dhaka Stock Exchange (DSE). From the regression analysis of the Carhart model, we have found that market, size, value, and momentum explain the excess stock return. This study indicates that the Carhart model has the lowest GRS F-statistic, highest adjusted R-squared, and lowest Sharpe ratio in contrast to the CAPM and three-factor model which indicates the superior explanatory power and statistical validity of the Carhart model. JEL Classification Codes: G12, G13, G14.

scholarly journals Implement Fama And French And Capital Asset Pricing Models In Saudi Arabia Stock Market

2015 ◽  
Vol 31 (3) ◽  
pp. 953 ◽  
Author(s):  
Abdulaziz Aldaarmi ◽  
Maysam Abbodb ◽  
Hussein Salameh
Keyword(s):  
Saudi Arabia ◽  
Asset Pricing ◽  
Stock Returns ◽  
Emerging Market ◽  
Explanatory Power ◽  
Islamic Culture ◽  
Pricing Models ◽  
Market Return ◽  
Asset Pricing Models ◽  
Fama And French

This paper applies two of the famous asset pricing models in finance (Capital Assent Pricing model and Fama and French 1993 three factor model) in an emerging market with an Islamic Culture: Saudi Arabia Market (Tadwal), Generalized Methods of Moments and t Test statistical techniques were used to find the coefficients and to compare between real and expected returns.The results show that Fama and French 1993 model has more explanatory power and do a better job in explaining the changes in stock returns than the CAPM, and those developed market models can be applicable in emerging markets like Saudi Arabia. CAPM model has a clear evidence for its applicability while Fama and French Model has a clear evidence for the market return but not a clear evidence for the size and book to market return. Finally the results show that we can predict the stock prices by using any of those two models which means that the Saudi Arabia Market is inefficient pricing Market.The modernity and low number of companies has a big effect on the results, in addition the strong purchasing power and strong cash availability.Finally we recommend to appply more modern pricing models at the micro and macro level and add variables consistent with the Islamic Culture of Saudi Arabia.

scholarly journals The Impact of the Financial Sector on Asset Pricing Tests: Evidence from the Colombo Stock Exchange

2016 ◽  
Vol 8 (2) ◽  
pp. 113
Author(s):  
Amal Peter Abeysekera ◽  
Nimal Pulukkuttige Don
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Financial Sector ◽  
Size Premium ◽  
Fama And French ◽  
The Impact ◽  
Three Factor ◽  
Better Than

<p>This paper aims to identify how the inclusion of financial sector affects the ability of asset pricing models to explain the average stock returns in the CSE.  Most of the asset pricing researches, the firms in the financial sector are excluded on the basis that their characteristics and the leverage are notably different than firms in other industries. Therefore the objective of this study is to identify the impact of the inclusion of financial sector on the ability of the Carhart four-factor model to explain the average stock returns in the CSE and to compare its performance with the Capital Asset Pricing Model (CAPM) and the Fama and French three-factor model. The study finds that the four-factor model; incorporating the market premium, size premium, value premium and momentum premium provides a satisfactory explanation of the variation in the cross-section of average stock returns in the CSE, even when the financial sector is included. It is found that the Carhart four-factor model performs better than the CAPM in all scenarios; and that it performs notably better than the Fama and French three-factor model.However, there is no notable difference in the findings either the financial sector is included or not. </p>

scholarly journals Optimisation of Time-Varying Asset Pricing Models with Penetration of Value at Risk and Expected Shortfall

Mathematics ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 394
Author(s):  
Adeel Nasir ◽  
Kanwal Iqbal Khan ◽  
Mário Nuno Mata ◽  
Pedro Neves Mata ◽  
Jéssica Nunes Martins
Keyword(s):  
At Risk ◽  
Asset Pricing ◽  
Stock Returns ◽  
Value At Risk ◽  
Expected Shortfall ◽  
Time Varying ◽  
Pricing Models ◽  
Asset Pricing Model ◽  
Asset Pricing Models ◽  
Market Beta

This study aims to apply value at risk (VaR) and expected shortfall (ES) as time-varying systematic and idiosyncratic risk factors to address the downside risk anomaly of various asset pricing models currently existing in the Pakistan stock exchange. The study analyses the significance of high minus low VaR and ES portfolios as a systematic risk factor in one factor, three-factor, and five-factor asset pricing model. Furthermore, the study introduced the six-factor model, deploying VaR and ES as the idiosyncratic risk factor. The theoretical and empirical alteration of traditional asset pricing models is the study’s contributions. This study reported a strong positive relationship of traditional market beta, value at risk, and expected shortfall. Market beta pertains its superiority in estimating the time-varying stock returns. Furthermore, value at risk and expected shortfall strengthen the effects of traditional beta impact on stock returns, signifying the proposed six-factor asset pricing model. Investment and profitability factors are redundant in conventional asset pricing models.

scholarly journals Does the Croatian Stock Market Have Seasonal Affective Disorder?

2021 ◽  
Vol 14 (2) ◽  
pp. 89
Author(s):  
Tihana Škrinjarić ◽  
Branka Marasović ◽  
Boško Šego
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Affective Disorder ◽  
Seasonal Affective Disorder ◽  
Stock Exchange ◽  
Trading Strategies ◽  
Future Research ◽  
Winter Solstice ◽  
Daily Data ◽  
Depressive Episodes

This paper explores mood anomalies, specifically the seasonal affective disorder (SAD) effect on the Zagreb Stock Exchange (ZSE). SAD is defined as a syndrome of depressive episodes in human behavior due to the changing of the season. Thus, the motive of this research is to gain better insights into the investors’ sentiment regarding SAD effects. The purpose of the research is to observe how investors’ sentiment affects the return and risk series on ZSE and if this could be exploitable. Using daily data on stock market return CROBEX for the period January 2010—February 2021, SAD effects are tested to explore if seasonal changes affect the stock returns and risk. Besides the SAD variable in the model, some control variables are included as well: Monday, tax, and COVID-19 effect. The results indicate that SAD effects exist on ZSE, even with controlling for mentioned effects; and asymmetries around winter solstice exist. Implications of such findings can be found in simulating trading strategies, which could incorporate such information to gain profits. Limitations of the research focus on one market, observing static parameters of the estimated models, and observing simple trading strategies. Thus, future research should focus on international diversification possibilities, time-varying models, and fully exploring the exploitation possibilities of such findings.

Do Financially Constrained Firms Earn Higher Returns than the Unconstrained Firms? A Comprehensive Evidence from Pakistan Stock Exchange

2020 ◽  
Keyword(s):  
Time Series ◽  
Asset Pricing ◽  
Capital Structure ◽  
Stock Returns ◽  
Financial Constraints ◽  
Stock Exchange ◽  
Cash Flows ◽  
Total Asset ◽  
Cash Holding ◽  
The Relationship

This paper examines the relationship between financial constraints and the stock returns explaining the pricing of stock through financially constrained and unconstrained firms in Pakistan. Three proxies; total assets, tangible to total assets and cash holding to total assets ratios) have been used for financial constraints and the study tried to investigate that either the investors are compensated for taking the extra risk or not in Pakistan Stock Exchange (PSX). We find that the financially constrained firms don’t earn higher returns when their capital structure is heavy with liquid assets and their cash flows are more than the unconstrained firms in PSX. Moreover, the time series results showed that the risk-adjusted returns of the most constrained firms give the mix and somewhat negative and significant and insignificant results for the Pakistani firms listed in PSX sorted based on tangible to total assets and Cash holding to total asset ratios. Keywords: Asset Pricing, Financial constraints, risk-adjusted performance of portfolios

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