scholarly journals Choosing Factors for the Vietnamese Stock Market

2021 ◽  
Vol 14 (3) ◽  
pp. 96
Author(s):  
Nina Ryan ◽  
Xinfeng Ruan ◽  
Jin E. Zhang ◽  
Jing A. Zhang
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Factor Models ◽  
Marginal Contribution ◽  
Return On Equity ◽  
Factor Modeling ◽  
Three Factor ◽  
Better Than

In this paper, we test the applicability of different Fama–French (FF) factor models in Vietnam, we investigate the value factor redundancy and examine the choice of the profitability factor. Our empirical evidence shows that the FF five-factor model has more explanatory power than the FF three-factor model. The value factor remains important after the inclusion of profitability and investment factors. Operating profitability performs better than cash and return-on-equity (ROE) profitability as a proxy for the profitability factor in FF factor modeling. The value factor and operating profitability have the biggest marginal contribution to a maximum squared Sharpe ratio for the five-factor model factors, highlighting the value factor (HML) non-redundancy in describing stock returns in Vietnam.

scholarly journals Modelos de Precificação de Ativos e o Efeito Liquidez: Evidências Empíricas no Mercado Acionário Brasileiro

2011 ◽  
Vol 9 (3) ◽  
pp. 383 ◽  
Author(s):  
Márcio André Veras Machado ◽  
Otávio Ribeiro de Medeiros
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Liquidity Premium ◽  
Pricing Models ◽  
Portfolio Returns ◽  
Asset Pricing Models ◽  
Three Factor

This paper is aims to analyze whether a liquidity premium exists in the Brazilian stock market. As a second goal, we include liquidity as an extra risk factor in asset pricing models and test whether this factor is priced and whether stock returns were explained not only by systematic risk, as proposed by the CAPM, by Fama and French’s (1993) three-factor model, and by Carhart’s (1997) momentum-factor model, but also by liquidity, as suggested by Amihud and Mendelson (1986). To achieve this, we used stock portfolios and five measures of liquidity. Among the asset pricing models tested, the CAPM was the least capable of explaining returns. We found that the inclusion of size and book-to-market factors in the CAPM, a momentum factor in the three-factor model, and a liquidity factor in the four-factor model improve their explanatory power of portfolio returns. In addition, we found that the five-factor model is marginally superior to the other asset pricing models tested.

Does Five-Factor Model Perform Better Than Three Factor Model? Evidence from Developed Countries of The Asia Pacific Region

2021 ◽  
Vol 3 (2) ◽  
pp. 119-132
Author(s):  
Ume Salma Akbar ◽  
Niaz Ahmed Bhutto ◽  
Suresh Kumar Oad Rajput
Keyword(s):  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Developed Countries ◽  
Asia Pacific ◽  
Size Factor ◽  
Pacific Region ◽  
Asia Pacific Region ◽  
Three Factor ◽  
Better Than

This study evaluates whether the “Fama-French five-factor model” can explain the variations in expected returns better than the “three-factor model.” Using the stock returns and accounting variable data from DataStream for 1,300 plus listed firms across six developed countries of the Asia Pacific region, including; Australia, Hong Kong, Japan, Israel, New Zealand, and Singapore for the period of Jun-2006 to February-2020. The paper is the first to examine the “five-factor model” performance across the developed countries of the Asia Pacific region. The empirical findings reveal that the Asia Pacific region for the sample period earns an equity premium. In addition, results report the redundancy of size factor (SMB) and value factor (HML), while the profitability (RMW) and investment premium (CMA) are positive and significant. Moreover, the study used Gibbons, Ross, and Shanken (GRS) test to the asset pricing model. The GRS test results on the “five-factor model” compared with the “three-factor model” demonstrate that profitability and investment factors add significant explanatory power to the analysis in the Asia Pacific region.

scholarly journals Role of leverage and liquidity risk in asset pricing: evidence from Indian stock market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mehak Jain ◽  
Ravi Singla
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Five Factor Model ◽  
Explanatory Power ◽  
Liquidity Risk ◽  
Pricing Models ◽  
Content Type ◽  
Asset Pricing Models ◽  
Three Factor ◽  
Better Than

Purpose Asset pricing revolves around the core aspects of risk and expected return. The main objective of the study is to test different asset pricing models for the Indian securities market. This paper aims to analyse whether leverage and liquidity augmented five-factor model performs better than Capital Asset Pricing Model (CAPM), Fama and French three-factor model, leverage augmented four-factor model and liquidity augmented four-factor model. Design/methodology/approach The data for the current study comprises records on prices of securities that are part of the Nifty 500 index for a time frame of 14 years, that is, from October 2004 to September 2017 consisting of 183 companies using time series regression. Findings The results indicate that the five-factor model performs better than CAPM and the three-factor model. The model outperforms leverage augmented and liquidity augmented four-factor models. The empirical evidence shows that the five-factor model has the highest explanatory power among the entire asset pricing models considered. Practical implications The present study bears certain useful implications for various stakeholders including fund managers, investors and academicians. Originality/value This study presents a five-factor model containing two additional factors, that is, leverage and liquidity risk along with the Fama-French three-factor model. These factors are expected to give more value to the model in comparison to the Fama-French three-factor model.

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.

scholarly journals Factors influencing SRI fund performance

2019 ◽  
Vol 3 (1) ◽  
pp. 68-81
Author(s):  
Halil Kiymaz
Keyword(s):  
Regression Analysis ◽  
Factor Model ◽  
Five Factor Model ◽  
Fund Performance ◽  
Factor Models ◽  
Cross Sectional ◽  
Content Type ◽  
Responsible Investment ◽  
Factors Influencing ◽  
Three Factor

Purpose The purpose of this paper is to examine socially responsible investment (SRI) fund performance and investigate the factors influencing fund performance. Design/methodology/approach The study uses return data from the Morningstar database for 152 SRI funds from January 1995 to May 2015. The initial analysis includes the use of various risk-adjusted performance measures, including Sharpe ratio, Treynor ratio, Information ratio, Sortino ratio and M2. The study also uses four factor models, including Jensen single-factor model, Fama–French three-factor model, Carhart four-factor model and Fama–French five-factor model to explain SRI fund returns. Finally, a cross-sectional regression analysis is applied to investigate the determinants of SRI fund returns. Findings The results show that, on average, the SRI funds provide comparable risk-adjusted returns relative to various benchmark market indices. Market factor is significant in explaining SRI fund returns. Examining each factor model, the results do not support Fama–French’s three-factor model as neither size nor value factor is significant. The author finds weak support for Carhart’s momentum factor along with the market factor. Finally, the Fama–French five-factor model shows market, size and operating profit factors explain SRI fund returns. The study also finds the fund performance is stronger for funds with the higher turnover ratio, the larger fund size and more managerial experience and lower for funds with higher expense ratio. Also, funds formed with negative screening perform better than positive or mixed screened funds. Originality/value SRI funds have received considerable attention from investors. This study contributes to the literature by examining SRI fund performance and investigating factors influencing their performance using multiple factor models and cross-sectional regression analysis. The findings are relevant for investors who demand responsible investment opportunities without sacrificing returns for nonfinancial screenings. Findings also suggest that investors should consider fund characteristics when selecting SRI funds.

scholarly journals Empirical Research on the Fama-French Three-Factor Model and a Sentiment-Related Four-Factor Model in the Chinese Blockchain Industry

2020 ◽  
Vol 12 (12) ◽  
pp. 5170 ◽  
Author(s):  
Ziyang Ji ◽  
Victor Chang ◽  
Hao Lan ◽  
Ching-Hsien Robert Hsu ◽  
Raul Valverde
Keyword(s):  
Stock Returns ◽  
Behavioral Finance ◽  
Factor Model ◽  
Explanatory Power ◽  
Online Information ◽  
Chinese Stock Market ◽  
Blockchain Technology ◽  
Fast Development ◽  
Independent Variable ◽  
Three Factor

As one of the most significant components of financial technology (FinTech), blockchain technology arouses the interests of numerous investors in China, and the number of companies engaged in this field rises rapidly. The emotion of investors has an effect on stock returns, which is a hot topic in behavioral finance. Blockchain is an essential part of FinTech, and with the fast development of this technology, investors’ sentiment varies as well. The online information that directly reflects investors’ mood could be utilized for mining and quantifying to construct a sentiment index. For a better understanding of how well some factors adequately explain the return of stocks related to blockchain companies in the Chinese stock market, the Fama-French three-factor model (FFTFM) will be introduced in this paper. Furthermore, sentiment could be a new independent variable to enhance the explanatory power of the FFTFM. A comparison between those two models reveals that the sentiment factor could raise the explanatory power. The results also indicate that the Chinses blockchain industry does not own the size effect and book-to-market effect.

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.

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

Cross section of stock returns on Shari’ah-compliant stocks: evidence from Pakistan

2019 ◽  
Vol 12 (2) ◽  
pp. 282-302 ◽  
Author(s):  
Salman Ahmed Shaikh ◽  
Mohd Adib Ismail ◽  
Abdul Ghafar Ismail ◽  
Shahida Shahimi ◽  
Muhammad Hakimi Mohd. Shafiai
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Cross Section ◽  
Factor Model ◽  
Five Factor Model ◽  
Value Premium ◽  
Expected Returns ◽  
Content Type ◽  
The Cross ◽  
Three Factor

Purpose This paper aims to study the cross section of expected returns on Shari’ah-compliant stocks in Pakistan by using single- and multi-factor asset pricing models. Design/methodology/approach To estimate cross section of expected returns of Shari’ah-compliant stocks, the study uses capital asset pricing model (CAPM), Fama-French three-factor model and Fama-French five-factor model. Data for the period 2001-2015 on 217 companies are used. For the market portfolio, PSX-100 and Dow Jones Islamic Index for Pakistan are used. Findings The study could not find empirical support for CAPM using Lintner (1965), Black et al. (1972) and Fama and Macbeth (1973) approach. Nonetheless, the relation between beta and returns is positive in up-market and negative in down-market. The results of Fama-French three-factor and five-factor models suggest that size premium is positive and significant for explaining the cross section of stock returns of small size stocks, whereas value premium is positive and significant for explaining the cross section of returns of high value stocks. Practical implications The results suggest that fund managers can use Shari’ah-compliant stocks for portfolio diversification and for offering specialized investments given the positive market excess returns and the existence of size and value premium on Shari’ah-compliant stocks. Originality/value This is the first study on Fama-French (2015) five-factor model for Islamic capital markets in Pakistan.

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