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Mohanty, Sunil K., and Mohan Nandha. "Oil Shocks and Equity Returns: An Empirical Analysis of the US Transportation Sector." Review of Pacific Basin Financial Markets and Policies 14, no. 01 (2011): 101–28. http://dx.doi.org/10.1142/s0219091511002159.
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The main purpose of this paper is to investigate the relation between oil price movements and stock returns in US transportation companies. We estimate oil price risk exposures of the US oil transport sector at the firm level as well as at the industry level over November 1999 to February 2008 period using the Fama–French–Carhart's (1997) four-factor asset pricing model augmented with oil price and interest rate factors. Overall, the results of our study suggest that oil price exposures of firms in the US transportation sector vary across firms and over time. The varying effects of oil shocks on stock returns may be attributed to several factors such as differences among firms' cost structure, financial policies, diversification activities, and hedging strategies.
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Sehgal, Sanjay, and Sonal Babbar. "Evaluating alternative performance benchmarks for Indian mutual fund industry." Journal of Advances in Management Research 14, no. 2 (2017): 222–50. http://dx.doi.org/10.1108/jamr-04-2016-0028.
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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.
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Khan, Muhammad Saifuddin, and Md Miad Uddin Fahim. "THE FOUR-FACTOR MODEL AND STOCK RETURNS IN BANGLADESH." International Journal of Accounting & Finance Review 6, no. 2 (2021): 133–49. http://dx.doi.org/10.46281/ijafr.v6i2.1122.
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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.
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Boamah, Nicholas Addai. "Robustness of the Carhart four-factor and the Fama-French three-factor models on the South African stock market." Review of Accounting and Finance 14, no. 4 (2015): 413–30. http://dx.doi.org/10.1108/raf-01-2015-0009.
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Purpose – The purpose of this study is to explore the applicability of the Fama–French and Carhart models on the South African stock market (SASM). It examines the ability of the models to capture size, book-to-market (BM) and momentum effects on the SASM. The paper, additionally, explores the ability of the Fama–French–Carhart factors to predict the future growth of the South African economy. Design/methodology/approach – The paper relies on data of 848 firms from January 1996 to April 2012 to examine the size, BM and momentum effects on the SASM. The paper constructs the test assets from a 3 × 3 sort on size and BM and a 3 × 3 sort on size and momentum. The paper estimates momentum as the past six-months’ cumulative return. The momentum portfolios are monthly rebalanced. Additionally, the size and BM portfolios are formed annually at the end of each June. Findings – Evidence is provided that size, BM and momentum effects exist on the SASM; also, the small- and high-BM firm portfolios, respectively, appear riskier than the big- and low-BM firm portfolios. The paper provides evidence of past winners outperforming past losers aside from the small-firm group. Additionally, the models only partially capture the size and value effects on the SASM. The Carhart model partly captures the momentum effects, but the Fama–French model is unable to describe the returns to the momentum-sorted portfolios. The evidence shows that the models’ factors predict future gross domestic product growth. Originality/value – The models do not fully describe returns on the SASM; any application of the models on the SASM should be done with caution. The Carhart model better describes returns than the Fama–French model on the SASM. The Fama–French–Carhart factors may relate to the underlying economic risk of the South African economy.
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Kiymaz, Halil. "Factors influencing SRI fund performance." Journal of Capital Markets Studies 3, no. 1 (2019): 68–81. http://dx.doi.org/10.1108/jcms-04-2019-0016.
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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.
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Pandey, Asheesh, Sanjay Sehgal, Amiya Kumar Mohapatra, and Pradeepta Kumar Samanta. "Equity market anomalies in major European economies." Investment Management and Financial Innovations 18, no. 2 (2021): 245–60. http://dx.doi.org/10.21511/imfi.18(2).2021.20.
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This paper investigates five leading equity market anomalies – size, value, momentum, profitability, and asset growth, for four Western European markets, namely, Germany, France, Italy and Spain, from January 2002 to March 2018. The study tests whether these anomalies reverse under different macro-economic uncertainty conditions, and evaluates if strategies based on time diversification can be formed using these equity market anomalies. Market anomalies were tested using four major asset pricing models – the Capital Asset Pricing Model, the Fama-French three-factor model, the Carhart model, and the Fama-French five-factor model. Macro-economic uncertainty was tested using two proxies, namely VIX and default premiums. Time diversified strategies were examined by estimating Sharpe ratios of combined portfolios formed by combining winner univariate portfolios. Value effect in Germany, Size effect in France and Profitability effect in Italy and Spain provide the highest unadjusted returns on long side strategies. No significant reversal of these anomalies was found under different macroeconomic uncertainties. Asset pricing tests show that CAPM works well for Spain and Italy, while Carhart’s model explains returns in Germany. The Fama-French five factor model does not seem to be a good descriptor of asset pricing for data. No suitable model for explaining asset returns is identified for France. Finally, it is observed that some of the equity market anomalies seem to be countercyclical and therefore provide time diversification opportunities. The study has implications for academicians, investors, and policy makers by providing insights for developing profitable investment strategies and highlighting the efficacy of alternative models as performance benchmarks.
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Hassan, Abul, Abdelkader Chachi, and Mahfuzur Rahman Munshi. "Performance measurement of Islamic mutual funds using DEA method." Journal of Islamic Accounting and Business Research 11, no. 8 (2020): 1481–96. http://dx.doi.org/10.1108/jiabr-04-2018-0053.
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Purpose The purpose of this study is to update the investment literature by providing latest evidence of performance of Islamic mutual funds by using global sample mutual funds data to support with empirical facts. Design/methodology/approach This study analyzes the comparative performance of Islamic and conventional mutual funds by using capital asset pricing model, Fama & French’s three-factor model and Carhart’s four-factor model. Further, the study tested the coskenwness effect by using data envelopment analysis approach. Findings The authors find evidence that when size of the funds is controlled, Islamic investment underperform the conventional mutual funds in four out of six models. The size of underperformance varies from model to model: from 32 basis points in the Carhart’s four-factor model with the skewness factor to two basis points at the Fama and French’s three-factor model. Also the study finds that alpha(s) are only insignificant for conventional mutual funds when the skewness factor is included in the regression. While comparing the loading on Islamic mutual funds, results show that Islamic mutual funds are less risky than conventional mutual funds when they are controlled for skewness. Originality/value This study uses the different factor models of performance evolution which help in overcoming weakness of measuring the Islamic mutual funds’ performance.
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Candika, Yossy Imam. "TESTING THE EFFECTIVENESS OF THE CARHART MODEL FOUR FACTORS ON EXCESS RETURNS IN INDONESIA." TIJAB (The International Journal of Applied Business) 1, no. 1 (2019): 60. http://dx.doi.org/10.20473/tijab.v1.i1.2017.60-74.
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One crucial information for investor in making their investment decision is to estimate asset-pricing level. The basic principle would be high risk, high return. This research is using Carhart model (1997): market return, size, book to market, and momentum. The goal of this research is to test and analyze the influence of Carhart Four Factor Model toward Indonesian stock' excess return. Dependent variable used in this research is stock' excess return, while independent variable used are Carhart four factor model. Population used is all non-financial firms listed in Bursa Efek Indonesia from year 2010 to 2012. Total samples are 150 firms. To test the model in this research, we firstly create ten portfolio groups by combining size-book to market and size-momentum. We use multiple regression analysis by using 10 regression analysis model based on previously built 10 portfolio combinations. Statistical test on variable excess market return toward stock return on 10 portfolio shows that there exist positive significant relationship to all models. SMB is significantly impacting portfolio return to 5 models. HML is significantly impacting portfolio return to 6 models. UMD impacting positively significant toward portfolio return on 2 models. Keywords: stock excess return, Carhart four factor model, market return, size, book to market, momentum.
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Mahmud, Delvira. "Testing the Four Factors of the Carhart Model Against Excess Return of Shares in Companies Registered in the Kompas 100 Index for the 2014-2016 Period." Jambura Science of Management 1, no. 1 (2019): 16–20. http://dx.doi.org/10.37479/jsm.v1i1.1983.
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The researcher intends to test the four carhart factor model of stock excess return in companies incorporated in Kompas 100 for the 2014-2016 period. Regression analysis was performed on four carhart factor models, namely market returns, firm size, book to market, and momentum towards excess return. The results of this study indicate that in the partial hypothesis testing market return, firm size, and book to market equty variables significantly influence the excess return, while the momentum variable does not significantly influence the magnitude of excess return.Keywords: Four factors, market returns, firm size, book to market equity, momentum, excess stock returns
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Costa, Bruce A., Keith Jakob, Scott J. Niblock, and Elisabeth Sinnewe. "Australian Stock Indexes and the Four-Factor Model." Applied Finance Letters 3, no. 1 (2014): 10. http://dx.doi.org/10.24135/afl.v3i1.17.
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Stock indexes are passive ‘value-weighted’ portfolios and should not have alphas which are significantly different from zero. If an index produces an insignificant alpha, then significant alphas for equity funds using this index can be attributed solely to manager performance. However, recent literature suggests that US stock indexes can demonstrate significant alphas, which ultimately raise questions regarding equity fund manager performance in both the US and abroad. In this paper, we employ the Carhart four-factor model and newly available Asian-Pacific risk factors to generate alphas and risk factor loadings for eight Australian stock indexes from January 2004 to December 2012. We find that the initial full sample period analysis does not provide indication of significant alphas in the indexes examined. However, by carrying out 36-month rolling regressions, we discover at least four significant alphas in seven of the eight indexes and factor loading variability. As previously reported in the US, this paper confirms similar issues with the four-factor model using Australian stock indexes and performance benchmarking. In effectively measuring Australian equity fund manager performance, it is therefore essential to evaluate a fund’s alpha and risk factors relative to the alpha and risk factors of the appropriate benchmark index.
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Machado, Márcio André Veras, and Otávio Ribeiro de Medeiros. "Modelos de Precificação de Ativos e o Efeito Liquidez: Evidências Empíricas no Mercado Acionário Brasileiro." Brazilian Review of Finance 9, no. 3 (2011): 383. http://dx.doi.org/10.12660/rbfin.v9n3.2011.2862.
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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.
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Abeysekera, Amal Peter, and Nimal Pulukkuttige Don. "The Impact of the Financial Sector on Asset Pricing Tests: Evidence from the Colombo Stock Exchange." Asian Journal of Finance & Accounting 8, no. 2 (2016): 113. http://dx.doi.org/10.5296/ajfa.v8i2.10056.
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<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>
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Molele, Mashukudu Hartley, and Janine Mukuddem-Petersen. "Emerging market currency risk exposure: evidence from South Africa." Journal of Risk Finance 21, no. 2 (2020): 159–79. http://dx.doi.org/10.1108/jrf-07-2019-0123.
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Purpose The purpose of this paper is to examine the level of foreign exchange exposure of listed nonfinancial firms in South Africa. The study spans the period January 2002 and November 2015. Foreign exchange risk exposure is estimated in relation to the exchange rate of the South African Rand relative to the US$, the Euro, the British Pound and the trade-weighted exchange rate index. Design/methodology/approach The study is based on the augmented-market model of Jorion (1990). The Jorion (1990) is a capital asset pricing model-inspired framework which models share returns as a function of the return on the market index and changes in the exchange rate factor. The market risk factor is meant to discount the effect of macroeconomic factors on share returns, thus isolating the foreign exchange risk factor. In addition, the study further added the size, value, momentum, investment and profitability risk factors in line with the Fama–French three-factor model, Carhart four-factor model and the Fama–French five-factor model to account for the fact that equity capital markets in countries such as South Africa are known to be partially segmented. Findings Foreign exchange risk exposure levels were estimated at more than 40% for all the proxy currencies on the basis of the standard augmented market model. However, after controlling for idiosyncratic factors, through the application of the Fama–French three-factor model, the Carhart four-factor model and the Fama–French five-factor model, exposure levels were found to range between 6.5 and 12%. Research limitations/implications These results indicate the importance of controlling for the effects of idiosyncratic facto0rs in the estimation of foreign exchange risk exposure in the context of emerging markets of Sub-Saharan Africa (SSA). Originality/value This is the first study to apply the Fama–French three-factor model, Carhart four-factor model and the Fama–French five-factor model in the estimation of foreign exchange exposure of nonfinancial firms in the context of a SSA country. These results indicate the importance of controlling for the effects of idiosyncratic factors in the estimation of foreign exchange risk exposure in the context of emerging markets.
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Moon, Gisung, Hongbok Lee, and Doug Waggle. "Long-run equity performance of firms that restate financial statements." Managerial Finance 46, no. 1 (2019): 92–108. http://dx.doi.org/10.1108/mf-05-2019-0247.
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Purpose The authors investigate how the stock market reacts to financial restatements using the restatements data from the United States Government Accountability Office (GAO-06-678). In particular, the purpose of this paper is to examine the long-run equity performance of the restating firms, for holding periods of one to five years after the announcements of restatements. Design/methodology/approach This paper measures the long-run stock performance of restating firms with the buy-and-hold abnormal returns and time-series regression analyses based on Fama–French’s (1993) three-factor model and Carhart’s (1997) four-factor model. Findings The authors find that restating firms significantly underperform in the long run compared with their peers matched by industry, size and book-to-market. Restating firms’ underperformance is confirmed with time-series regression analyses based on Fama–French’s (1993) three-factor model and Carhart’s (1997) four-factor model. Further, the authors find the negative long-run abnormal performance of restating firms is primarily driven by large firms. The authors also report that self-prompted restatements and improper revenue accounting-triggered restatements result in worse long-run abnormal performance. Originality/value This paper is the first paper that thoroughly investigates the long-run stock returns of the firms that restate financial statements by fully considering the size effect.
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옥영경 and 김정무. "Idiosyncratic Volatility and Cross-Section of Expected Returns: Using the Carhart(1997) four-factor model." Journal of Insurance and Finance 29, no. 1 (2018): 63–92. http://dx.doi.org/10.23842/jif.2018.29.1.003.
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Rath, Subhrendu, and Robert B. Durand. "Decomposing the size, value and momentum premia of the Fama–French–Carhart four-factor model." Economics Letters 132 (July 2015): 139–41. http://dx.doi.org/10.1016/j.econlet.2015.05.003.
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M. Sembiring, Ferikawita, and . "How Well the Implementation of Carhart Model in Market Overreaction Condition? Evidence in Indonesia Stock Exchange." International Journal of Engineering & Technology 7, no. 4.38 (2018): 928. http://dx.doi.org/10.14419/ijet.v7i4.38.27611.
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This study aims to determine an ability of the four-factor model of Carhart in explaining the portfolio returns formed in condition of market overreaction. The four-factor model is basically a model proposed by Fama and French and then developed by Carhart which adds price momentum factor into the model. While market overreaction is a market condition caused by excessive reactions from investors when receiving information. The portfolios used are the winner and loser formed based on the returns of each portfolio to the average of the returns. Both portfolio consist are the stocks of non-financial sector in Indonesia Stock Exchange during the period July 2005 - December 2015. The data used are the Composite Stock Price Index (CSPI), stock market capitalization, book to market ratio of each shares and the difference of returns of the loser over of the winner, as an indicator of price momentum factor that formed in market overreaction condition characterized by occurance the reversal of returns.The results show that the four-factor model can explain the portfolio return well. Implementation of the GARCH (1,1) model to improve the accuracy of the estimation results also shows similar findings.
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Arouri, Mohamed, and Frederic Teulon. "Persistence Of Performance Using The Four-Factor Pricing Model: Evidence From Dow Jones Islamic Index." Journal of Applied Business Research (JABR) 30, no. 3 (2014): 917. http://dx.doi.org/10.19030/jabr.v30i3.8577.
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Despite the increasing attention to ethical investments, the empirical studies on Islamic indices are scarce. The main goal of this article is to investigate whether Dow Jones Islamic Index 100 Titans (DJI100) delivers persistent performance. Using the Carhart (1997) four-factor model, we consider all historical data available from the launching of the index by Dow Jones on September 1999 to March 2011. We study all the firms included in the index and we construct the risk factors (Market premium, size, Book-to-Market, momentum). Our findings show positive performance for momentum strategy and support the idea that ethical investments could under-perform and thus investors accept to pay for their ethics.
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Que, Tingting, Wai Yin Mok, and Kit Yee Cheung. "Testing Multi-Factor Models in ADRs: Emerging Market vs. Developed Market." International Journal of Accounting & Finance Review 5, no. 1 (2020): 12–21. http://dx.doi.org/10.46281/ijafr.v5i1.486.
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This paper tests whether the Carhart four-factor model and the Fama-French five-factor model can explain variation in returns of 1,230 ADRs originating from six developed markets and five emerging markets. We aim to compare emerging market ADRs with developed market ADRs in terms of traditional risk factors significance, model fitness and the existence of abnormal returns. Overall, we find that substantial variations exist among ADRs by their origin-of-market. First, both models show that most of the positive abnormal returns we document accrue to emerging market ADRs, mainly Chinese ADRs. Among the risk factors, market risk premium is found to be most prevalent in both emerging and developed markets. Although we find some difference in the presence of particular risk factors employed in the four-factor vs. five-factor model, overall, there are no significant differences in the explanation power between the two models. Lastly, the low R2 values imply that both models do not work very well with the international market ADRs.
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Shaker, Mohamed A., and Marwan M. Abdeldayem. "Examining asset pricing models in emerging markets: Evidence from Egypt." Corporate Ownership and Control 16, no. 1 (2018): 50–57. http://dx.doi.org/10.22495/cocv16i1art6.
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The study aims at executing five tantamount asset pricing models in Egypt, in particular: 1) “the CAPM”, 2) “the Fama-French three-factor model (1993)”, 3) “the Carhart model (1997)”, 4) “the four-factor model of Chan and Faff (2005)”, and 5) “the five-factor model (Liquidity and Momentum-Augmented Fama-French three factor model)”. This research effort pursues Fama-French arranging approach in view of the size and Book-to-Market proportion (B-M ratio) for 55 securities out of the most 100 stocks in the Egyptian Stock Exchange (EGX) over a five years’ time period. We utilized “the time series regression of Black, Jensen and Scholes (1972)”. The findings of the study revealed that in terms of predictability, FF three-factor model prompts a significant improvement over the CAPM, while alternate models do not demonstrate a noteworthy increment over the FF three factor model.
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Surono, Yunan, Akhmad Irwansyah Siregar, and R. Adisetiawan. "Perspektif Asset Pricing Model dan Pengembangannya Pada Pasar Modal Indonesia." Eksis: Jurnal Ilmiah Ekonomi dan Bisnis 11, no. 1 (2020): 25. http://dx.doi.org/10.33087/eksis.v11i1.194.
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Every investor will pay attention to return and risk in investing in portfolios. In portfolio investment, this is known as the principle of high return high risk. To see this return and risk, 4 (four) models are known, namely 1) Capital Asset Pricing Model (CAPM) with beta factors (market risk), 2) French Fama models with beta, size and value factors, 3) Carhart model with factors beta, size, value and momentum, 4) the Arbitrage Pricing Theory (APT) model in this study, in addition to factors such as the model above, macro economic factors include economic growth, inflation, interest rates, the rupiah exchange rate against US dollars and the money supply. Models 1, 2 and 3 analyze from the fundamental side of the company while models 4 analyze from the macroeconomic side. Based on the theory of Ying (1966), Tauchen & Pitts (1983), Blume (1994), Lee & Swaminathan (2000), Gervais (2001) and Kaniel (2003) that the total trading volume affects the movement of stock indexes, stock prices and affects the magnitude of the level return and investment risk, then in this study the researchers added the total volume of activity factor as an effort to overcome the weaknesses found in the Carhart model where in calculations using the three sequential sort method, this model has not been able to record a holding period (the length of shares in the hands of investors) which in this study. The model with the addition of the total volume activity variable as a five factor pricing model is a model of the researcher's development. From the test results it can be concluded that the development model turned out to be better precision in estimating return and risk and its accuracy is more accurate than existing models.
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Richey, Greg. "Fewer reasons to sin: a five-factor investigation of vice stock returns." Managerial Finance 43, no. 9 (2017): 1016–33. http://dx.doi.org/10.1108/mf-09-2016-0268.
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Purpose The purpose of this paper is to investigate the return performance of a portfolio of US “vice stocks,” firms that manufacture and sell products such as alcohol, tobacco, gaming services, national defense and firearms, adult entertainment, and payday lenders. Design/methodology/approach Using daily return data from a portfolio of vice stocks over the period 1987-2016, the author computes the Jensen’s α (capital asset pricing model (CAPM)), Fama-French Three-Factor, Carhart Four-Factor, and Fama-French Five-Factor results for the complete portfolio, and each vice industry individually. Findings The results from the CAPM, Fama-French Three-Factor Model, and the Carhart Four-Factor Model show a positive and significant α for the vice portfolio throughout the sample period. However, the α’s significance disappears with the addition of the explanatory variables from the Fama-French Five-Factor Model. Originality/value The author provides academics and practitioners with results from a new model. As of this writing, the author is unaware of any articles published in peer-reviewed academic journals that investigate vice stocks within the framework of the Fama-French Five-Factor Model (2015). First, the existing literature does not shed light on the relationship between “profitability” and “aggressiveness” (the fourth and fifth factors of the Fama-French Model) and vice stock returns. Second, within the framework of the Fama-French Five-Factor Model, the author shows results not only from a portfolio of vice stocks, but from various vice industries as well.
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Misra, Dheeraj, Sushma Vishnani, and Ankit Mehrotra. "Four-moment CAPM Model: Evidence from the Indian Stock Market." Journal of Emerging Market Finance 18, no. 1_suppl (2019): S137—S166. http://dx.doi.org/10.1177/0972652719831564.
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This study aims at analysing the impact of co-skewness and co-kurtosis on the returns of the Indian stocks by incorporating co-skewness and co-kurtosis in the traditional capital asset pricing model (CAPM) of Sharpe, in a three-factor model of Fama and French and in a four-factor model of Carhart. The results of the study show that co-skewness and co-kurtosis have significant impact on the returns of the Indian stock. However, the impact of co-skewness is higher than co-kurtosis. JEL Classification: G11, G12
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Zaremba, Adam, and Przemysław Konieczka. "Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?" International Journal of Management and Economics 53, no. 3 (2017): 26–47. http://dx.doi.org/10.1515/ijme-2017-0017.
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Abstract This paper tests the performance of the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor and Carhart four-factor models on the Polish market. We use stock level data from April 2001 to January 2014 and find strong evidence for value and momentum effects, but only weak evidence for size premium. We formed portfolios double-sorted on size and book-to-market ratios, as well as on size and momentum, and we explain their returns with the above-mentioned asset pricing models. The CAPM is rejected and the three-factor and four-factor models perform well for the size and B/M sorted portfolios, but fail to explain returns on the size and momentum sorted portfolios. With the exception of the momentum factor, local Polish factors are not correlated with their European and global counterparts, suggesting market segmentation. Finally, the international value, size and momentum factors perform poorly in explaining cross-sectional variation in stock returns on the Polish market.
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So, Simon M. S. "Who is King in Factor Zoo? Case of the Chinese Stock Market." Journal of Prediction Markets 14, no. 2 (2020): 77–102. http://dx.doi.org/10.5750/jpm.v14i2.1821.
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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
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Momani, Mohammad Q. M. "On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange." Afro-Asian J. of Finance and Accounting 11, no. 1 (2021): 64. http://dx.doi.org/10.1504/aajfa.2021.10033825.
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Momani, Mohammad Q. M. "On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange." Afro-Asian J. of Finance and Accounting 11, no. 1 (2021): 64. http://dx.doi.org/10.1504/aajfa.2021.111808.
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Dash, Saumya Ranjan, and Jitendra Mahakud. "Market anomalies, asset pricing models, and stock returns: evidence from the Indian stock market." Journal of Asia Business Studies 9, no. 3 (2015): 306–28. http://dx.doi.org/10.1108/jabs-06-2014-0040.
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Purpose – This paper aims to investigate whether the use of conditional and unconditional Fama and French (1993) three-factor and Carhart (1997) four-factor asset pricing models (APMs) captures the role of asset pricing anomalies in the context of emerging stock market like India. Design/methodology/approach – The first step time series regression approach has been used to drive the risk-adjusted returns of individual securities. For examining the predictability of firm characteristics or asset pricing anomalies on the risk-adjusted returns of individual securities, the panel data estimation technique has been used. Findings – Fama and French (1993) three-factor and Carhart (1997) four-factor model in their unconditional specifications capture the impact of book-to-market price and liquidity effects completely. When alternative APMs in their conditional specifications are tested, the importance of medium- and long-term momentum effects has been captured to a greater extent. The size, market leverage and short-term momentum effects still persist even in the case of alternative unconditional and conditional APMs. Research limitations/implications – The empirical analysis does not extend for different market scenarios like high and low volatile market or good and bad macroeconomic environment. Because of the constraint of data availability, the authors could not include certain important anomalies like net operating assets, change in gross profit margin, external equity and debt financing and idiosyncratic risk. Practical implications – Although the active investment approach in stock market shares a common ground of semi-strong form of market efficiency hypothesis which also supports the presence of asset pricing anomalies, less empirical evidence has been explored in this regard to support or repute such belief of practitioners. Our empirical findings make an attempt in this regard to suggest certain anomaly-based trading strategy that can be followed for active portfolio management. Originality/value – From an emerging market perspective, this paper provides out-of-sample empirical evidence toward the use of conditional Fama and French three-factor and Carhart four-factor APMs for the complete explanation of market anomalies. This approach retains its importance with respect to the comprehensiveness of analysis considering alternative APMs for capturing unique effects of market anomalies.
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Bortoluzzo, Adriana Bruscato, Maria Kelly Venezuela, Maurício Mesquita Bortoluzzo, and Wilson Toshiro Nakamura. "The influence of the 2008 financial crisis on the predictiveness of risky asset pricing models in Brazil." Revista Contabilidade & Finanças 27, no. 72 (2016): 408–20. http://dx.doi.org/10.1590/1808-057x201603220.
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ABSTRACT This article examines three models for pricing risky assets, the capital asset pricing model (CAPM) from Sharpe and Lintner, the three factor model from Fama and French, and the four factor model from Carhart, in the Brazilian mark et for the period from 2002 to 2013. The data is composed of shares traded on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) on a monthly basis, excluding financial sector shares, those with negative net equity, and those without consecutive monthly quotations. The proxy for market return is the Brazil Index (IBrX) and for riskless assets savings accounts are used. The 2008 crisis, an event of immense proportions and market losses, may have caused alterations in the relationship structure of risky assets, causing changes in pricing model results. Division of the total period into pre-crisis and post-crisis sub-periods is the strategy used in order to achieve the main objective: to analyze the effects of the crisis on asset pricing model results and their predictive power. It is verified that the factors considered are relevant in the Brazilian market in both periods, but between the periods, changes occur in the statistical relevance of sensitivities to the market premium and to the value factor. Moreover, the predictive ability of the pricing models is greater in the post-crisis period, especially for the multifactor models, with the four factor model able to improve predictions of portfolio returns in this period by up to 80%, when compared to the CAPM.
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Koo, Bonha, and Joon Chae. "Dividend month premium in the Korean stock market." Journal of Derivatives and Quantitative Studies: 선물연구 28, no. 2 (2020): 77–104. http://dx.doi.org/10.1108/jdqs-04-2020-0006.
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The dividend month premium is the phenomenon that firms have abnormal returns in predicted dividend month. This study aims to examine the dividend month premium in the Korean stock market, using common stocks listed on the KOSPI and KOSDAQ from January 1999 to December 2016. Abnormal returns are estimated using the following asset price models: capital asset pricing model, Fama–French three-factor model and the Fama–French–Carhart four-factor model. This study finds positive abnormal returns in predicted dividend months, and even for the within-firm portfolio that buys stocks in the predicted dividend months and sells the same stocks in other months. The price impact and the subsequent reversals are greater with lower liquidity and higher dividend yield, implying that the price pressure from dividend-seeking investors affects this dividend month premium. In addition, the anomalies with the pre-declaration stock are smaller than the post-declaration stock, suggesting the necessity to improve the cash dividend policy of post-declaration for market efficiency.
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Paul, Karen. "The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds." Social Responsibility Journal 13, no. 3 (2017): 513–28. http://dx.doi.org/10.1108/srj-09-2016-0154.
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Purpose This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER). Design/methodology/approach A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies. Findings The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion. Research limitations/implications These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction. Practical implications These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance. Social implications This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction. Originality/value Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.
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Papík, Mário, and Lenka Papíková. "COMPREHENSIVE ANALYSIS OF REGULATORY IMPACTS ON PERFORMANCE OF SLOVAK PENSION FUNDS." Journal of Business Economics and Management 22, no. 3 (2021): 735–56. http://dx.doi.org/10.3846/jbem.2021.14481.
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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.
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Asad, Humaira, and Faraz Khalid Cheema. "An Empirical Assessment of the Q-Factor Model: Evidence from the Karachi Stock Exchange." LAHORE JOURNAL OF ECONOMICS 22, no. 2 (2017): 117–38. http://dx.doi.org/10.35536/lje.2017.v22.i2.a5.
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This paper tests the validity of the q-factor model on stocks listed on the Karachi Stock Exchange in Pakistan. The q-factor model is an investment-based factor model that explains stock returns based on market, profitability, investment and size factors and it tends to outperform the traditional CAPM, the Fama and French (1993) three-factor model and Carhart (1997) four-factor model, with some exceptions. While the model has been tested using data from stock markets in developed countries, the dynamics of emerging stock markets are significantly different, warranting a reapplication of the model to average stock returns in a developing market. We use data from the Karachi Stock Exchange to test the model in an emerging market context. The results show that, as firms increase their investment, their stock returns decline. Hence, a firm’s investment is conditional on a given level of profitability. The size effect is strongly significant for small firms, but absent for large firms. Finally, the study identifies new factors that give a better understanding of returns in the context of an emerging economy such as Pakistan.
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Fieberg, Christian, Thorsten Poddig, and Armin Varmaz. "An investor’s perspective on risk-models and characteristic-models." Journal of Risk Finance 17, no. 3 (2016): 262–76. http://dx.doi.org/10.1108/jrf-02-2016-0026.
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Purpose In capital markets, research risk factor loadings and characteristics are considered as opposing explanations for the cross-sectional dispersion in average stock returns. However, there is little known about the performance an investor would obtain who believes either in the characteristics explanation (CB-investor) or in the risk factor loadings explanation (RB-investor). The purpose of this paper is to compare the performance of CB- and RB-investors. Design/methodology/approach To compare the competing strategies, the authors propose a simple new approach to equity portfolio optimization in the style of Brandt et al. (2009) by modeling the portfolio weight in each asset as a function of the asset's risk factor loadings or characteristics. The authors perform an empirical analysis on the German stock market, exploiting the risk factor loadings from the Carhart (1997) four-factor model and the respective characteristics size, book-to-market equity ratio and momentum. Findings The results show that investment strategies relying on characteristics (particularly on momentum) outperform risk-based investment strategies in horse races. These findings hold in- and out-of-sample. Furthermore, the characteristics-based investment strategies outperform a value-weighted market portfolio strategy in- and out-of-sample. Originality/value The authors introduce a portfolio optimization approach that enables investors to directly link portfolio decisions to the firm’s characteristics or risk factor loadings.
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Foye, James. "A new perspective on the size, value, and momentum effects." Review of Accounting and Finance 15, no. 2 (2016): 222–51. http://dx.doi.org/10.1108/raf-05-2015-0065.
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Purpose This paper aims to provide a comprehensive analysis of whether stock returns in Europe are best characterized by country-specific or Europe-wide versions of widely used factor models. Design/methodology/approach To estimate the cost of equity in Europe, both region-wide and nationally, the Fama and French (2012) three-factor and Carhart (1997) four-factor models are used. Findings The results show that although the value and momentum premiums are present on a Europe-wide basis, the size premium is country-specific. Originality/value The paper offers an explanation to the puzzle of why Fama and French (2012) detect value and momentum premiums but no size premium in Europe. Furthermore, the results shed new light on these premiums and present a challenge to existing applications of widely used factor models.
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Hossan, Mohammad Akter, and Mohammad Joynal Abedin. "Factors of Stock Return and Carhart Model: The Case of Dhaka Stock Exchange (DSE) of Bangladesh." International Journal of Economics and Finance 11, no. 6 (2019): 14. http://dx.doi.org/10.5539/ijef.v11n6p14.
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The objective of this study is to find factors of stock return by testing validity of Carhart model in Dhaka Stock Exchange (DSE) of Bangladesh. For this purpose, this study uses monthly excess return of portfolios, size, book-to-market value, market return, and price momentum data of 109 sample firms to calculate return factors such as market risk premium, size premium (SMB), value premium (HML), and momentum effect (UMD) for the sample period of 2005 to 2014. Then a total of ten portfolios, six based on size and book-to-market value and four based on size and price momentum, are constructed in this study. Excess return of each of these portfolios are calculated and regressed on the above four factors. Results of this study reveal that in DSE, market risk premium is positively and significantly related with the excess return of all portfolios; Size premium is found positively and significantly related with the return of small size portfolios; Value premium is found negatively and significantly related with the returns of all portfolios except one big portfolio (B/H); momentum effect is found positively and significantly related to the excess return of up (U), big (B), and small (S) size portfolios. It is also evident from R2 value, F statistic, and robustness test of this study that four-factor model is valid and it can predict portfolio returns accurately when there is no abnormality such as market crash occurs in DSE.
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Lawson, Daniel T., and Robert L. Schwartz. "Do Hedge Funds Arbitrage on Asset Growth, Earnings Momentum and Equity Financing Anomalies?" International Journal of Economics and Finance 10, no. 9 (2018): 38. http://dx.doi.org/10.5539/ijef.v10n9p38.
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This paper analyzes the risk-adjusted performance of hedge funds and their overall ability to arbitrage on known market anomalies. This is done by testing three anomaly factors capturing total asset growth, equity financing, and earnings momentum in addition to the traditional Fama and French (1993) and Carhart (1997) four-factor model and Fung and Hsieh (2001) risk factors. Our results suggest that the average hedge fund employs a strategy consistent with the total asset growth and earnings momentum anomalies but contradictory to the equity financing anomaly of Hirshleifer and Jiang (2007). Multi-factor alpha generation does seem to persist over longer periods of time which suggests the use of other untested, return-generating arbitrage methods.
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Chen, Yifan, Zilin Chen, and Huoqing Tang. "High-order moments in stock pricing: evidence from the Chinese and US markets." China Finance Review International 10, no. 3 (2019): 323–46. http://dx.doi.org/10.1108/cfri-06-2019-0070.
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Purpose The purpose of this paper is to introduce an augmented high-order capital asset pricing model (AH-CAPM) as a new risk-based model to price stocks. Design/methodology/approach The AH-CAPM is defined as a linear model with high-order marginal moments and co-moments from the joint distributions of the sorted stock portfolio returns and the market return. Findings The performance of the AH-CAPM is tested in the Chinese and US stock markets. Empirical results show that the high-order marginal moments and co-moments from the joint distributions in AH-CAPM contain the risk and return information implied by the Fama–French factors, indicating it as a better risk measurement. Moreover, the AH-CAPM performs better than the Fama–French three-factor model and the Carhart four-factor model in both the Chinese and US stock markets. Originality/value Overall, this study introduces a new asset pricing model with better measurements to incorporate risk information in the stock market.
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Hofmann, Daniel, and Karl Ludwig Keiber. "Seasonalities in the German stock market." Financial Markets and Portfolio Management 35, no. 2 (2021): 151–92. http://dx.doi.org/10.1007/s11408-020-00373-1.
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AbstractThis paper suggests innovative investment strategies drawing on return seasonalities. By means of an out-of-sample study of the German stock market, we report that these long–short investment strategies earn on average raw returns up to 233 basis points per month throughout two decades from 1998 to 2017. On a monthly basis, this documents an outperformance of the corresponding Heston and Sadka (J Financ Econ 87(2):418–445, 2008) strategy by 66%. This outperformance is robust in magnitude even after adjusting for common risk factors along both the three-factor Fama and French (J Financ Econ 33(1):3–56, 1993) model and the four-factor Carhart (J Finance 52(1):57–82, 1997) model. Categorizing stocks into three risk profiles lets us conclude that long–short momentum portfolios of stocks with a low-risk profile generate robust investment performance.
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Rubanov, Dmitrij, and Matthias Nnadi. "The impact of international financial reporting standards on fund performance." Accounting Research Journal 31, no. 1 (2018): 102–20. http://dx.doi.org/10.1108/arj-01-2017-0020.
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Purpose The purpose of this paper is to examine the effect of international financial reporting standards (IFRS) on the performance of UK investment closed-end trust funds with domestic equity focus using Carhart’s Four-Factor model. Design/methodology/approach The paper is based on the Efficient Market Hypothesis, which argues that all available information is already included in the price of assets, and therefore, investors cannot beat the market or generate abnormal returns. Findings The results show that on average, UK investment trusts neither do generate abnormal returns, nor is their performance persistent. This paper provides empirical evidence to support the efficient market hypotheses and provides proof that the adoption of IFRS has, on average, a decreasing impact on the excess returns generated by UK investment trusts. Originality/value The findings of this paper have business policy implications for investment trust in the UK.
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Tusiime, Ivan Mugarura, and Man Wang. "Are Islamic stocks subject to oil price risk exposure?" Journal of Risk Finance 21, no. 2 (2020): 181–200. http://dx.doi.org/10.1108/jrf-05-2019-0076.
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Purpose The purpose of this paper is to examine whether oil price risk is a significant determinant of stock returns. Design/methodology/approach Using monthly data on a sample of Islamic stocks listed on the New York Stock Exchanges and National Association of Securities Dealers Automated Quotations System (NASDAQ) over the period from January 1990 to December 2017, the study examines whether oil price risk is a significant determinant of stock returns using Fama–French–Carhart’s four-factor asset pricing model amplified with Brent oil price factor. Findings The results from the cross-sectional regression analysis indicate that the extent of the exposure is significantly positive using a full sample period. Moreover, results from size and momentum factors are highly significant whereas book-to-market has no significant impact on Islamic stock returns. Research limitations/implications The results support the concept for diversification in equity investment and are thus important for investors, analysts and policymakers. Originality/value This study is the first of its kind to establish whether oil price risk is a factor that can determine returns of Islamic listed stocks using the most developed stock market in the world (New York Stock Exchanges and NASDAQ).
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Kyei-Mensah, Justice. "Stock liquidity, firm size and return persistence around mergers and acquisitions announcement." Investment Management and Financial Innovations 16, no. 2 (2019): 116–27. http://dx.doi.org/10.21511/imfi.16(2).2019.10.
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The paper examines market liquidity and size of 396 US firms engaged in mergers and acquisitions (M&amp;amp;A). The announcement-period returns are estimated using Carhart’s four-factor model and estimated using two regression specifications. The results suggest that the return continuation depends on the degree of liquidity and the firm size. The positive and significant cumulative abnormal returns (CARs) under both the specifications with exception to the acquiring firms are found. Under the generalized autoregressive conditional heteroskedasticity (GARCH) model due to Glosten et al. (1993), hereafter, GJR-GARCH, the pre-event CARs are significant and persistent in contrast to the estimation based on the ordinary least squares (OLS) regression. This suggests possible leakage of information prior to an event announcement and further lends support to the contract theory of information asymmetry and signalling. It is also found that the target firms exhibit positive and significant post-event CARs for the mid-cap stocks. Whereas, for the acquirer firms, the post-event CARs for the small trading volume stocks are positive and significant. The results are robust to bootstrapping simulations.
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Bowes, Jordan, and Marcel Ausloos. "Financial Risk and Better Returns through Smart Beta Exchange-Traded Funds?" Journal of Risk and Financial Management 14, no. 7 (2021): 283. http://dx.doi.org/10.3390/jrfm14070283.
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Smart beta exchange-traded funds (SB ETFs) have caught the attention of investors due to their supposed ability to offer a better risk–return trade-off than traditionally structured passive indices. Yet, research covering the performance of SB ETFs benchmarked to traditional cap-weighted market indices remains relatively scarce. There is a lack of empirical evidence enforcing this phenomenon. Extending the work of Glushkov (“How Smart are “Smart Beta” ETFs? …”, 2016), we provide a quantitative analysis of the performance of 145 EU-domicile SB ETFs over a 12 year period, from 30 December 2005 to 31 December 2017, belonging to 9 sub-categories. We outline which criteria were retained such that the investigated ETFs had at least 12 consecutive monthly returns data. We consider three models: the Sharpe–Lintner capital asset pricing model, the Fama–French three-factor model, and the Carhart four-factor model, discussed in the literature review sections, in order to assess the factor exposure of each fund to market, size, value, and momentum factors, according to the pertinent model. In order to do so, the sample of SB ETFs and benchmarks underwent a series of numerical assessments in order to aim at explaining both performance and risk. The measures chosen are the Annualised Total Return, the Annualised Volatility, the Annualised Sharpe Ratio, and the Annualised Relative Return (ARR). Of the sub-categories that achieved greater ARRs, only two SB categories, equal and momentum, are able to certify better risk-adjusted returns.
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Kyei-Mensah, Justice, Chen Su, and Nathan Lael Joseph. "Shareholders wealth and mergers and acquisitions (M&As)." Investment Management and Financial Innovations 14, no. 3 (2017): 15–24. http://dx.doi.org/10.21511/imfi.14(3).2017.02.
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We re-examine the abnormal returns (ARs) around merger announcements using a large sample of 8,945 announcements. We estimate the ARs using the Carhart (1997) four-factor model under the standard ordinary least square (OLS) method and the Glosten et al.’s (1993) asymmetric GARCH specification (hereafter, GJR-GARCH). Under the OLS method, acquirers do not generate significant cumulative ARs (CARs) in line with prior work. Our new results, however, show that under the GJR-GARCH estimation, acquirers generate positive and significant cumulative CARs. We attribute the gains to the use of the GJR-GARCH estimation method, as the GJR-GARCH method is more effective in capturing conditional volatility and asymmetry in the excess returns.
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Zhang, Weiwei, Tiezhu Sun, Zilong Wang, Vishnu Raj Kumar, and Yechi Ma. "DOES FAITH HAS IMPACT ON INVESTMENT RETURN: EVIDENCE FROM REITS." International Journal of Strategic Property Management 23, no. 6 (2019): 378–89. http://dx.doi.org/10.3846/ijspm.2019.10428.
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This paper investigates whether faith has impact on investment returns. Specifically, we choose the Shariah compliance and REITs investment for the purpose of investigation. Synthetic Shariah compliant portfolios are constructed with various interpretation of compliance. We compare the performance of Shariah compliant portfolios with US Equity REIT portfolio during 1993–2017 by examining the abnormal returns using CAPM and Carhart four-factor model. We find no evidence of underperformance or outperformance of the Shariah compliant investments. This is also true during the financial crisis periods which is confirmed by the sub-sample analysis. Our findings suggest that Shariah compliant REIT investor faces no cost or gain in his investments as a result of his faith.
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Alam, Mahfooz, and Valeed Ahmad Ansari. "Are Islamic indices a viable investment avenue? An empirical study of Islamic and conventional indices in India." International Journal of Islamic and Middle Eastern Finance and Management 13, no. 3 (2020): 503–18. http://dx.doi.org/10.1108/imefm-03-2019-0121.
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Purpose This study aims to empirically compare the performance of Islamic indices vis-à-vis to their conventional counterparts in India. Design/methodology/approach The performance of the Islamic and selected conventional indices is evaluated using various risk-adjusted performance measures such as Sharpe ratio, Treynor ratio, M-square (M2) ratio, information ratio, capital asset pricing model (CAPM), Fama-French three-factor model and Carhart four-factor model in India context. The period of study is from December 2006 to 2018. Findings The risk-adjusted performance measures based on the Sharpe ratio, Treynor ratio, information ratio, the M2 ratio show that the return of Islamic indices provides slightly superior performance. However, performance investigated using CAPM, Fama-French and Carhart benchmarks produce a statistically insignificant differences in return of the Islamic and conventional benchmarks. Research limitations/implications The Sharīʿah-compliant indices can provide a viable, ethical and alternative investment avenue for faith-based investors as it will not make them worse off in comparison to the conventional benchmarks. This also offers opportunity to conventional investors for portfolio diversification. The promotion of faith-based investment can serve as a tool for financial inclusion to attract a huge segment of Indian population in the formal financial system. The findings of the study suffer from the limitation of small sample size and empirical methods used. Originality/value This study contributes to the literature on the comparative performance of Islamic and conventional indices in general and emerging markets, in particular, using most recent data and covering a relatively long span of time. To the best of the knowledge, this is the first comprehensive study examining the performance of Islamic indices, using multiple Islamic indices and various risk-adjusted measures in the Indian context.
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Mondher, Kouki, Abderrazek Elkhaldi, and Wided Bouani. "Does Financial Crisis Affect the Cost of Equity Estimation? Evidence from the Tunisian Stock Exchange." International Journal of Accounting and Financial Reporting 7, no. 2 (2017): 491. http://dx.doi.org/10.5296/ijafr.v7i2.12304.
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The aim of this paper is to study the impact of the recent financial crisis on equity cost estimation. We use a data of a 22 firms listed in the Tunisian stock market during the period from July 2006 to June 2011. The choice of this period is motivated by the occurrence of the financial crisis of October 2008, which divides the period into two equal sub-periods. In the first stage, we make abstraction to the crisis impact and we run the three specifications of the cost of equity: the CAPM, the Fama -French three factor model and The Carhart four-factor model. Empirical results confirm the explanatory power of the three specifications in the context of the Tunisian market. We also confirm the existence of a size effect, a book to market effect and a momentum effect. In the second stage, we show that the presence of financial crisis does not affect the cost of equity. However, we note a decrease in the coefficients of the explanatory variable after introducing the dummy crisis variable.
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Mahajan, Arvind. "Information content of web-based stock ratings: the case of Motley fool CAPS data." Journal of Advances in Management Research 15, no. 3 (2018): 393–410. http://dx.doi.org/10.1108/jamr-02-2018-0025.
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Purpose The purpose of this paper is to answer a fundamental question – are individual stock picks by a particular internet investment community informative enough to beat the market? The author observes that the stock picks by the CAPS community are reflective of existing information and portfolios based upon CAPS community stock rankings do not generate abnormal returns. The CAPS community is good at tracking existing performance but, it lacks predictive ability. Design/methodology/approach The study uses a unique data set of stock ratings from Motley Fools CAPS community to determine the information content embedded in these ratings. Observing predictive ability of this web-based stock ratings forum will raise questions about the efficiency of the financial markets. The author forms stock portfolios based on stocks’ star ratings, and star rating changes, and test if the long-short portfolio strategy generates significant α after controlling for single, and multi-factor asset pricing models, such as Fama-French three-factor model and Carhart four-factor model. Findings The paper finds no evidence that the CAPS community ratings contain “information content,” which can be exploited to generate abnormal returns. CAPS community ratings are good at tracking existing stock performance, but cannot be used to make superior forecasts to generate abnormal returns. The findings are consistent with the efficient market hypothesis. Furthermore, the author provides evidence that CAPS community ratings are themselves determined by stock performance rather than the other way around. Originality/value The study employs a unique data set capturing the stock ratings of a very popular web-based investment community to evaluate its ability to make better than random forecasts. Besides applying well-accepted asset pricing models to generate α, the study conducts causality tests to discern a causal relation between stock ratings and stock performance.
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Yue, Xiao-Guang, Yan Han, Deimante Teresiene, Justina Merkyte, and Wei Liu. "Sustainable Funds’ Performance Evaluation." Sustainability 12, no. 19 (2020): 8034. http://dx.doi.org/10.3390/su12198034.
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The purpose of this research is to consider if the growing popularity of sustainable investment does not create additional risks in investing. Different views on sustainable investments were analyzed to identify different approaches to the main risks. A quantitative analysis was carried out to investigate the possible benefits and advantages of sustainable investment. Without taking into account the social perks of investing in sustainable funds, this study evaluates the performance and economic returns of both sustainable and traditional funds. The research was carried out in two parts by comparing samples of 30 sustainable and 30 traditional funds. Firstly, such methods as annual returns, standard deviations, Sharpe ratios, skewness, and kurtosis were calculated and analyzed. The Capital Asset Pricing Model (CAPM), Fama–French three-factor model and Carhart four-factor model were used to value different market portfolios. The findings of this study suggest that sustainable funds are less risky than traditional funds. However, at the same time, we want to point to pay attention to the period of our analysis and to have in mind that an increasing demand of social responsible assets increases risks as well. However, no clear evidence was found to confirm that sustainable funds can generate higher returns compared to traditional piers or benchmark index. Moreover, after studying different methods the study reveals that the Fama–French three-factor model was the most suitable for explaining the traditional and sustainable funds’ results.
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Peltomäki, Jarkko. "Investment styles and the multifactor analysis of market timing skill." International Journal of Managerial Finance 13, no. 1 (2017): 21–35. http://dx.doi.org/10.1108/ijmf-04-2015-0095.
Full textAbstract:
Purpose The purpose of this paper is to present and demonstrate how the use of a multifactor model in the analysis of market timing skill can be misleading because the use of a multifactor model does not suit all investment styles equally well. If the factors of the analysis model do not span the portfolio holdings of a fund with less conventional investment strategy, the use of a multifactor model may even deteriorate the overall inference in measuring the market timing skill of a large sample of funds. Design/methodology/approach This study investigates the limitations of multifactor models in the analysis of market timing skill by applying the traditional Treynor-Mazuy and Henriksson-Merton analysis models of market timing skill using a set of “placebo” funds which are “natural” passive market timers. Findings The results of the study show that the incorporation of the Carhart four-factor model into the analysis of market timing skill considerably reduces the percentage of significant market timing results. But, as expected, the reduction of bias is not equal for different investment styles, and it works best when the factors of the analysis model are related to the investment style of the placebo portfolio. Practical implications This style-related limitation of multifactor models in the analysis of market timing skill may result in detecting funds with less conventional investment strategies as market timers since the factors used in the analysis are not likely to span their investment styles. Originality/value This study shows that the use of a multifactor model may lead to inferring passive market timers with less conventional investment styles as market timers. In addition, the findings of the study leave option replication approaches as more preferable bias corrections than multifactor extensions.