scholarly journals Testing the Performance of Asset Pricing Models in Different Economic and Interest Rate Regimes Using Individual Stock Returns

2010 ◽  
Author(s):  
Ann Marie Hibbert ◽  
Edward R. Lawrence
Keyword(s):  
Asset Pricing ◽  
Interest Rate ◽  
Stock Returns ◽  
Factor Model ◽  
Capital Asset Pricing ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Asset Pricing Models ◽  
Three Factor ◽  
Better Than

Using return data for all stocks continuously traded on the NYSE over the period July 1963 to December 2006, we tested the performance of the two-moment Capital Asset Pricing Model (CAPM) and the Fama French three-factor model in explaining individual stock returns. We found the performance of Fama French three-factor model to be marginally better than the CAPM. We further test the models for the significance and stability of parameters in the bull/bear periods and the Federal increasing/decreasing interest rate periods and found the performance of the two models comparable.  

An Empirical Test of Capital Asset-pricing Model and Three-factor Model of Fama in Indian Stock Exchange

2018 ◽  
Vol 43 (4) ◽  
pp. 294-307
Author(s):  
Nenavath Sreenu
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Stock Exchange ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Three Factor

This article aims to test the capital asset-pricing model (CAPM) and three-factor model of Fama in Indian Stock Exchange, and it has focused on the recent growth of capital markets in India and the need of practitioners in these markets to determine a stable price for securities, and achieving expected returns has brought into consideration the theories predicting price securities Among different models the CAPM of Sharp. The study uses a sample of daily data and annual average for 54 companies listed on the National Stock Exchange, during the period from 2010 to 2016. The research article’s intention is to find whether the relationship between expected return and risk is linear, if beta is a complete measure of the risk and if a higher risk is compensated by a higher expected return. The results confirm that the intercept is statistically insignificant, upholding theory, for both individual assets and portfolios. The tests do not essentially provide validation against CAPM and Fama; however, other simulations can be built, more close to reality, by improving the model and offering an alternative which also takes into account the specific conditions of the Indian capital market and the global financial crisis consequences.

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 Analisis Komparasi Capital Asset Pricing Model dan Fama-French Three Factor Model untuk Penentuan Investasi Pada Saham Indeks IDX30 (Periode 2016 – 2018)

2020 ◽  
Vol 2 (2) ◽  
pp. 1
Author(s):  
Nadyah Brhigitta Dwiyuningsih Dotulong ◽  
Lanto Miriatin Amali ◽  
Selvi Selvi
Keyword(s):  
Asset Pricing ◽  
Annual Report ◽  
Factor Model ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Three Factor

Penelitian ini bertujuan untuk mengetahui Metode Capital Asset Pricing Model dan Fama-French Three Factor Model untuk penentuan investasi pada saham Indeks IDX30 periode 2016 – 2018 serta untuk membandingkan antara dua model tersebut model manakah yang memiliki tingkat akurasi yang lebih tinggi untuk mempertimbangkan tingkat return dan risikonya. Metode yang digunakan dalam penelitian ini adalah deskriptif komparatif dengan pendekatan kuantitatif. Adapun data yang digunakan adalah data berupa laporan keuangan tahunan (annual report) Indeks IDX30 periode 2016 – 2018. Hasil penelitian ini menunjukkan bahwa Metode Capital Asset Pricing Model merupakan model yang lebih akurat dibandingkan Fama-French Three Factor Model. Selain terlihat sederhana, model Capital Asset Pricing Model ini juga lebih akurat dalam menentukan investasi sesuai dengan tingkat pengembalian yang diharapkan dan risiko yang bersedia ditanggung dan model ini dapat memberikan informasi secepat-cepatnya mengenai tingkat pengembalian dan risiko yang akan ditanggung investor. Kata-kata Kunci:Metode Capital Asset Pricing Model, Fama-French Three Factor Model, dan Indeks IDX30. 

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

scholarly journals The Capital Asset Pricing Model And Fama-French Three Factor Model In An Emerging Market Environment

2017 ◽  
Vol 16 (4) ◽  
pp. 231-256 ◽  
Author(s):  
Adam Karp ◽  
Gary Van Vuuren
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Emerging Market ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Market Environment ◽  
Asset Pricing Model ◽  
Three Factor

This paper tests the validity and accuracy of the Capital Asset Pricing Model and the Fama-French Three-Factor Model, by predicting the variation in excess portfolio returns on the Johannesburg Stock Exchange. Portfolios of stocks were constructed based on an adapted Fama-French (1993) approach, using a  annual sorting procedure, based on Size and Book-to-Market metrics respectively. The sample period spans six years, 2010 to 2015, and includes 46 companies listed on the JSE. The results indicate that both models perform relatively poorly because of inadequate market proxy measures, market liquidity restrictions, unpriced risk factors and volatility inherent in an emerging market environment. The Value Premium is found to explain a larger proportion of variation in excess returns than the Size Premium, and is more pronounced in portfolios with relatively higher book-to-market portfolios.

Comparison of the Capital Asset Pricing Model and the Three-Factor Model in a Business Cycle: Empirical Evidence from the Vietnamese Stock Market

2020 ◽  
Vol 36 (2) ◽  
Author(s):  
Luong Tram Anh
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Asset Pricing Model ◽  
Using Data ◽  
The Cost ◽  
Three Factor

Using data from 2010 to 2019, for the first time, the Capital Asset Pricing Model (CAPM) and the Three-factor Model (TFM) are compared in different contexts of the Vietnamese economy (recession and recovery). This paper employs four tests including the t-test, determination coefficient R2, Chow-test and GRS-test to examine the performance of the two models. Results show the superiority of the TFM over the CAPM in both contexts of the economy, consistent with Fama and French’s studies. This promises that the TFM can be used to replace the CAPM in capturing the cost of equity. Another finding is that the two models tend to perform better in recession than recovery. This study contributes to the literature about asset-pricing models and their performances in different economic contexts. Moreover, the findings also offer insights into the use of the CAPM and TFM in developing countries in general and Vietnam, in particular.

scholarly journals An Empirical Analysis of CAPM and Fama-French Three-Factor Model -- Based on the Example of Shanghai Stock Exchange

2020 ◽  
Vol 2 (2) ◽  
Author(s):  
Ziyi Li
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Market Risk ◽  
Rate Of Return ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Three Factor

Some scholars, represented by William F. Sharpe and John Lintner, have established the "Capital Asset Pricing Model" (CAPM) in the 1960s. This model finds that under certain assumptions the expected rate of return shows a clear linear relationship with market risk (systemic risk), no matter for a single asset or a combined asset. Capital Asset Pricing Model (CAPM), is regarded as the spine of modern price theory in financial market. It has been applied widely to asset pricing analysis and determination, such as stocks, funds and bonds and to investment decision field. This essay based on CSMAR data, separately uses CAPM and the Fama-French Three-Factor Model to conduct empirical test on the expected return of SSE A-share portfolio. The main conclusion is that in China’s stock market, market risk is not the only factor which determines the expected return of the market portfolio or individual stock, while the size factor (SMB) and book-to-market ratio factor (HML) can better explain the portfolio’s expected rate of return.

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