Journal articles: 'Fama and French three-factor model'

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Saputra, Dede Irawan, and Umi Murtini. "PERBANDINGAN FAMA AND FRENCH THREE FACTOR . MODEL DENGAN CAPITAL ASSET PHCING MODEL." Jurnal Riset Akuntansi dan Keuangan 4, no. 2 (August 1, 2008): 132. http://dx.doi.org/10.21460/jrak.2008.42.148.

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Penelitian ini bertujuan untuk menguji kemompuon Fama and Freneh three factor model dalom menjelaskan retum jortofolio dibandingkan dengan CAPM. Data yang digmakm pda penelitiot ini adatah d*a sekunder dari perusahaan yang masuk dalam LQ-45 dari periede Februari 2000 sampai Juli 2007- Sampel yang digunakan adaleh perusahaan yang selalu masuk datam Lg-45 selona periode penelitian- Hasil penelitian menwtjukkan batma betdasukmtnilai adjusted P dapat disimpulkan bahwa CAPM lebih mampu menjelaskot return partofolia dibandingkan dengan Fama and French three factor model Hal ini dryot dilihat dari nilai adjusted N CAPM yang lebih besar dibanding nilai adjusted,F Fama and Frqnch three factor modelKeywords: z Market, Size, BEIME, dan Adjusted R2

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Sehrawat, Neeraj, Amit Kumar, Narander Kumar Nigam, Kirtivardhan Singh, and Khushi Goyal. "Test of capital market integration using Fama-French three-factor model: empirical evidence from India." Investment Management and Financial Innovations 17, no. 2 (May 22, 2020): 113–27. http://dx.doi.org/10.21511/imfi.17(2).2020.10.

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Integration or segmentation of markets determines whether substantial advantages in risk reduction can be attained through portfolio diversification in foreign securities. In an integrated market, investors face risk from country-specific factors and factors, which are common to all countries, but price only the later, as country-specific risk is diversifiable. The aim of this study is two-fold, firstly, investigating the superiority of the Fama-French three-factor model over Capital Asset Pricing Model (CAPM) and later using the superior model to test for integration of Indian and US equity markets (a proxy for global markets). Based on a sample of Bombay Stock Exchange 500 non-financial companies for the period 2003–2019, the data suggest the superiority of Fama-French three-factor model over CAPM. Using the Non-Linear Seemingly Unrelated Regression technique, the first half of the sample period (2003–2010) shows evidence of market segmentation; however, the second sub-period (2011–2019) shows weak signs of market integration, which is supported by the Johansen test of cointegration, suggesting that Indian market is gradually getting integrated with global markets.

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Datta, Smita, and Anindita Chakraborty. "Fama French Three-factor Model: A Comparative Study." Effulgence-A Management Journal 16, no. 2 (July 1, 2018): 32. http://dx.doi.org/10.33601/effulgence.rdias/v16/i2/2018/32-41.

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Li, Man, and Michael Dempsey. "The Fama and French three-factor model in developing markets: evidence from the Chinese markets." Investment Management and Financial Innovations 15, no. 1 (January 23, 2018): 46–57. http://dx.doi.org/10.21511/imfi.15(1).2018.06.

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The authors study the Fama and French three-factor (FF-3F) model in relation to a developing market. To this end, they consider Chinese stock markets over the period 1995–2008, which is to say, over a period when these markets are recognized as “developing” markets influenced by speculative activity. The authors find that the model appears to be working as a form of “principal component analysis for the determinants of stock price formation with book-to-market (B/M) as the “variable of choice” on account of that it captures the earnings-to-price (E/P), cash-flow-to-price (C/P) and sales-to-price (S/P) variables while remaining largely uncorrelated with firm size (whereas E/P, C/P and S/P are themselves positively correlated with firm size). The variables, however, are unrelated to risk as represented by market exposure, volatility, or leverage.

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Paliienko, Oleksandr, Svitlana Naumenkova, and Svitlana Mishchenko. "An empirical investigation of the Fama-French five-factor model." Investment Management and Financial Innovations 17, no. 1 (March 10, 2020): 143–55. http://dx.doi.org/10.21511/imfi.17(1).2020.13.

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The article deals with evaluating the securities portfolios in the process of transition from the one-factor CAPM model to the Fama-French five-factor model (FF5F). It identifies the advantages of the latter and discusses the controversial issues regarding its use by portfolio investors in different countries, given the anomalies inherent in asset pricing. Besides, the peculiarities of the statistical stratification method used in the FF5F model to group stock portfolios are revealed, and attention is drawn to some of the debating points of the five-factor model. The proposals have been formulated, which offer broader avenues for taking advantage of the FF5F model and increase the validity of the portfolio analysis results. The article also gives recommendations on modifying the approaches to analyzing small-size portfolios versus big-size portfolios based on partial changes in RMW and CMA factors, threshold proportions, and the use of STARR for asymmetric portfolios. The study substantiates the use of these approaches in testing the Fama-French five-factor model with portfolios composed of blue chips.

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Black, Angela J. "Macroeconomic risk and the Fama‐French three‐factor model." Managerial Finance 32, no. 6 (June 2006): 505–17. http://dx.doi.org/10.1108/03074350610666238.

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Abd-Alla, Mustafa Hussein, and Mahmoud Sobh. "Empirical Test of Fama and French Three-Factor Model in the Egyptian Stock Exchange." Financial Assets and Investing 11, no. 2 (December 31, 2020): 5–18. http://dx.doi.org/10.5817/fai2020-2-1.

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We test the empirical validity of the three-factor model of Fama and French in the Egyptian Stock Exchange (EGX) using monthly excess stock returns of 50 stocks listed on the EGX from January 2014 to December 2018. Our findings do not support Fama and French three-factor model, where the coefficient of the beta was insignificant. The “SBM” coefficient and the “HML” coefficient were equal to zero and insignificant, which confirms the absence of the small firm effect and book-to-market ratio effect in the market. We conclude that there is no relation between expected return and Fama-French risk factors.

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Abd-Alla, Mustafa Hussein, and Mahmoud Sobh. "Empirical Test of Fama and French Three-Factor Model in the Egyptian Stock Exchange." Financial Assets and Investing 11, no. 2 (December 31, 2020): 5–18. http://dx.doi.org/10.5817/fai2020-2-1.

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We test the empirical validity of the three-factor model of Fama and French in the Egyptian Stock Exchange (EGX) using monthly excess stock returns of 50 stocks listed on the EGX from January 2014 to December 2018. Our findings do not support Fama and French three-factor model, where the coefficient of the beta was insignificant. The “SBM” coefficient and the “HML” coefficient were equal to zero and insignificant, which confirms the absence of the small firm effect and book-to-market ratio effect in the market. We conclude that there is no relation between expected return and Fama-French risk factors.

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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 (November 9, 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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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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Balakrishnan, A., Moinak Maiti, and Pradiptarathi Panda. "Test of Five-factor Asset Pricing Model in India." Vision: The Journal of Business Perspective 22, no. 2 (April 30, 2018): 153–62. http://dx.doi.org/10.1177/0972262918766133.

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In this article, we examine whether stock returns are related with important firm characteristics and fundamentals such as size, value, profitability and investment. We also evaluate whether the existing asset pricing models of Fama–French three-factor (FFTF) model and Fama–French five-factor model can capture the average returns on portfolios constructed based on the above characteristics and fundamentals. We find from the results that average return pattern clearly shows that Indian stock market is strongly influenced by the factors mentioned above. Asset pricing results also shed light that FFTF model clings on to its efficiency at capturing the average returns on portfolios, while Fama–French five-factor model does a plausible job.

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Richey, Greg. "Fewer reasons to sin: a five-factor investigation of vice stock returns." Managerial Finance 43, no. 9 (September 11, 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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Taneja, Yash Pal. "Revisiting Fama French Three-Factor Model in Indian Stock Market." Vision: The Journal of Business Perspective 14, no. 4 (October 2010): 267–74. http://dx.doi.org/10.1177/097226291001400403.

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Sembiring, Ferikawita M. "Three-Factor and Five-Factor Models: Implementation of Fama and French Model on Market Overreaction Conditions." Journal of Finance and Banking Review Vol. 3 (4) Oct-Dec 2018 3, no. 4 (December 11, 2018): 77–83. http://dx.doi.org/10.35609/jfbr.2018.3.4(6).

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Objective - Previous research by this author has stated that the market overreaction phenomenon occurs in the Indonesian capital market and the CAPM (Capital Asset Pricing Model) is able to explain portfolio returns. However, CAPM is still debated along with the emergence of the other asset pricing models, such as the multifactor model proposed by Fama and French. The aim of this research is to test the ability of that model to explain the returns of portfolios formed under market overreaction conditions. Methodology/Technique - The data used in this study is the same as that of the previous research, which includes winner and loser portfolio data formed in market overreaction conditions, particularly on the Indonesian Stock Exchange, between July 2005 and December 2015. The multifactor models used include a three-factor model consisting of the factors of market, firm size, firm value, and a five-factor model with the added factors of profitability and investment. To obtain more accurate results, GARCH econometric models were also used in addition to standard test models for obtaining unbiased results. Findings - This research concludes that market factors (Rm-Rf), firm size (SMB), and firm value (HML), are able to explain the winner and loser portfolio returns well. However, when the factors of profitability (RMW) and investment (CMA) are added into the three-factor model, the RMW and CMA explained the returns negatively and inconsistently when the GARCH model is implemented. Novelty – These results imply that the three-factor model is more accurate than the five-factor model, contrary to the previous findings of Fama and French. Type of Paper - Empirical. Keywords: Fama and French Model; Five-factor Model; Market Overreaction; Three-factor Model; Portfolio. JEL Classification: G11, G12, G14

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Sattar, Mahnoor, and Jannatunnesa. "CAPM Vs Fama-French Three-Factor Model: An Evaluation of Effectiveness in Explaining Excess Return in Dhaka Stock Exchange." International Journal of Business and Management 12, no. 5 (April 27, 2017): 119. http://dx.doi.org/10.5539/ijbm.v12n5p119.

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CAPM has been prevalently used by practitioners for calculating required rate of return despite having drawbacks. Fama French presented their 3 factor model in order to gap the limitations posed by CAPM model. This paper attempts to examine practical implications and effectiveness of Fama French model vis-a-vis the CAPM model in explaining excess return of Dhaka Stock Exchange by analyzing five publicly listed firms of Cement industry over 10 years period of 2004-2014. As the representative of market index, DGEN is taken from 2004 till 2013 and later on DSEX is taken. Simple and multiple linear regression analysis have been used against daily market return and respective companies return. Results shows that adjusted R square of Fama French model have a higher value than adjusted R square of CAPM model after running cross sectional regression of the observed panel data. It means that Fama French model is better predicting variation in excess return over Rf than CAPM for all the five companies of the Cement industry over the period of ten years. Low p values indicate that the coefficients are statistically significant. Nonetheless this paper concludes that the companies who want to use Fama French model instead of CAPM must evaluate the time and effort required to use the model before they replace CAPM with the multi factor model for their stock return analysis.

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Shi, Qi, Ali F. Darrat, Bin Li, and Richard Chung. "Technology prospect and the cross-section of stock returns: evidence from the Australian market." Corporate Ownership and Control 11, no. 1 (2013): 295–303. http://dx.doi.org/10.22495/cocv11i1c2art7.

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We examine the link between technology prospect and stock returns in the Australian market. Our results suggest that the technology-based asset pricing model outperforms the CAPM and Fama-French three-factor models in explaining the cross-section of the Australian Fama-French 25 size/book-to-market portfolios. The results prove robust to using alternative estimation methods and continue to supports the importance of the technology factor for shaping the cross section of the Fama-French portfolios returns.

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Dotulong, Nadyah Brhigitta Dwiyuningsih, Lanto Miriatin Amali, and Selvi Selvi. "Analisis Komparasi Capital Asset Pricing Model dan Fama-French Three Factor Model untuk Penentuan Investasi Pada Saham Indeks IDX30 (Periode 2016 – 2018)." JAMIN : Jurnal Aplikasi Manajemen dan Inovasi Bisnis 2, no. 2 (March 5, 2020): 1. http://dx.doi.org/10.47201/jamin.v2i2.47.

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

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Liu, Hao, and Ya-Chun Gao. "The impact of corporate lifecycle on Fama–French three-factor model." Physica A: Statistical Mechanics and its Applications 513 (January 2019): 390–98. http://dx.doi.org/10.1016/j.physa.2018.09.037.

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Hirukawa, Masayuki, and Jiro Hodoshima. "REEXAMINATION OF THE ROBUSTNESS OF THE FAMA-FRENCH THREE-FACTOR MODEL." Far East Journal of Theoretical Statistics 52, no. 3 (August 10, 2016): 215–34. http://dx.doi.org/10.17654/ts052030215.

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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 (May 4, 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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Shaikh, Salman Ahmed, Mohd Adib Ismail, Abdul Ghafar Ismail, Shahida Shahimi, and Muhammad Hakimi Mohd. Shafiai. "Cross section of stock returns on Shari’ah-compliant stocks: evidence from Pakistan." International Journal of Islamic and Middle Eastern Finance and Management 12, no. 2 (April 30, 2019): 282–302. http://dx.doi.org/10.1108/imefm-04-2017-0100.

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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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Amanda, Citra, and Zaäfri Ananto Husodo. "Empirical test of Fama French three factor model and illiquidity premium in Indonesia." Corporate Ownership and Control 12, no. 2 (2015): 362–73. http://dx.doi.org/10.22495/cocv12i2c3p2.

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This study, using more than 10 years of monthly time-series data and controlling for the non-crisis as well as crisis period, investigates the existence of Fama-French three factors and liquidity to the excess return of stock portfolio in Indonesia. The results show that market beta is consistently positive and significant in each portfolios, when sorted by size-illiquidity and book-to-market (BM)-illiquidity. SMB could explain ILLIQ and vice versa, and in general the hypothesis in this research are accepted, also there are consistency in SMB when sorted by size-illiquidity and also BM-illiquidity which are two out of six are not significant. Subprime mortgage crisis statistically has no effect in all portfolios. The results supported Fama and French (1992, 1993) and the results of Lam and Tam (2011).

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Karp, Adam, and Gary Van Vuuren. "The Capital Asset Pricing Model And Fama-French Three Factor Model In An Emerging Market Environment." International Business & Economics Research Journal (IBER) 16, no. 4 (October 2, 2017): 231–56. http://dx.doi.org/10.19030/iber.v16i4.10040.

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

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Abd-Alla, Mustafa Hussein, and Mahmoud Sobh. "The Impact of Herding on the Risk Pricing in the Egyptian Stock Exchange." Financial Assets and Investing 11, no. 2 (December 31, 2020): 19–37. http://dx.doi.org/10.5817/fai2020-2-2.

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We test the impact of herding behaviour on the risk pricing in the Egyptian Stock Exchange (EGX) by adding an additional risk factor reflecting herding behaviour to the Fama and French three-factor model. We construct a portfolio to mimic an additional risk factor related to herding behaviour, in addition to the original risk factors in the Fama and French three-factor model. The three-factor model will be tested in its original form and re-tested after adding the herding behaviour factor. The study is based on Hwang and Salmon methodology, in which the state space approach based on Kaman’s filter was used to measure herding behaviour. We used monthly excess stock returns of 50 stocks listed on the EGX from January 2014 to December 2018. The results do not support Fama and French model before and after adding the herding behaviour factor, therefore, there is no effect of herding behaviour on the risk pricing in the Egyptian Stock Exchange.

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Abd-Alla, Mustafa Hussein, and Mahmoud Sobh. "The Impact of Herding on the Risk Pricing in the Egyptian Stock Exchange." Financial Assets and Investing 11, no. 2 (December 31, 2020): 19–37. http://dx.doi.org/10.5817/fai2020-2-2.

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We test the impact of herding behaviour on the risk pricing in the Egyptian Stock Exchange (EGX) by adding an additional risk factor reflecting herding behaviour to the Fama and French three-factor model. We construct a portfolio to mimic an additional risk factor related to herding behaviour, in addition to the original risk factors in the Fama and French three-factor model. The three-factor model will be tested in its original form and re-tested after adding the herding behaviour factor. The study is based on Hwang and Salmon methodology, in which the state space approach based on Kaman’s filter was used to measure herding behaviour. We used monthly excess stock returns of 50 stocks listed on the EGX from January 2014 to December 2018. The results do not support Fama and French model before and after adding the herding behaviour factor, therefore, there is no effect of herding behaviour on the risk pricing in the Egyptian Stock Exchange.

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Acheampong, Prince, and Sydney Kwesi Swanzy. "Empirical Test of Single Factor and Multi-Factor Asset Pricing Models: Evidence from Non Financial Firms on the Ghana Stock Exchange (GSE)." International Journal of Economics and Finance 8, no. 1 (December 24, 2015): 99. http://dx.doi.org/10.5539/ijef.v8n1p99.

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<p>This paper examines the explanatory power of a uni-factor asset pricing model (CAPM) against a multi-factor model (The Fama-French three factor model) in explaining excess portfolio returns on non-financial firms on the Ghana Stock Exchange (GSE). Data covering the period January 2002 to December 2011 were used. A six Size- Book-to-Market (BTM) ratio portfolios were formed and used for the analysis. The paper revealed that, a uni-factor model like the (CAPM) could not predict satisfactorily, the excess portfolio returns on the Ghana Stock Exchange. By using the multi-factor asset pricing model, that is, the Fama-French Three Factor Model, excess portfolio returns were better explained. It is then conclusive enough that, the multi-factor asset pricing model introduced by Fama and French (1992) was a better asset pricing model to explain excess portfolio returns on the Ghana Stock Exchange than the Capital Assets Pricing Model (CAPM) and that there exist the firm size and BTM effects on the Ghanaian Stock market.</p>

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Aygoren, Hakan, and Emrah Balkan. "The role of efficiency in capital asset pricing: a research on Nasdaq technology sector." Managerial Finance 46, no. 11 (July 16, 2020): 1479–93. http://dx.doi.org/10.1108/mf-12-2019-0612.

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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.

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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 (December 11, 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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Javid, Attiya Y., and Eatzaz Ahmad. "Asset Pricing Behaviour with Dual-Beta in Case of Pakistani Stock Market." Pakistan Development Review 50, no. 2 (June 1, 2011): 95–118. http://dx.doi.org/10.30541/v50i2pp.95-118.

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This study investigates the dynamics of beta by the asymmetric response of beta to bullish and bearish market environment on 50 stocks traded in Karachi Stock Exchange during 1993-2007. The results show that the betas increase (decrease) when the market is bullish (bearish). The results however suggest that investors receive a positive premium for accepting down-side risk, while a negative premium is associated with up-market beta. The results suggest that the conditional Fama and French three factor model has performed better than the conditional CAPM when news asymmetry was taken into account compared with the unconditional Fama and French three factor model and the unconditional dual-beta CAPM in explaining the relationship in beta and returns in case of Pakistani market. JEL classification: G12, G15 Keywords: Beta Instability, High Market Beta, Low Market Beta, EGARCH Model, News Asymmetry, Fama and French Three Factor Model

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Ragab, Nada S., Rabab K. Abdou, and Ahmed M. Sakr. "A Comparative Study between the Fama and French Three-Factor Model and the Fama and French Five-Factor Model: Evidence from the Egyptian Stock Market." International Journal of Economics and Finance 12, no. 1 (December 21, 2019): 52. http://dx.doi.org/10.5539/ijef.v12n1p52.

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The focus of this paper is to test whether the Fama and French three-factor and five factor models can capture the variations of returns in the Egyptian stock market as one of the growing emerging markets over the time-period July 2005 to June 2016. To achieve this aim, following Fama and French (2015), the authors construct the Fama and French factors and three sets of test portfolios which are: 10 portfolios double-sorted on size and the BE/ME ratio, 10 portfolios double-sorted on size and operating profitability, and 10 portfolios double-sorted on size and investment for the Egyptian stock market. Using time-series regressions and the GRS test, the results show that although both models cannot be rejected as valid asset pricing models when applied to portfolios double-sorted on size and the BE/ME ratio, they still leave substantial variations in returns unexplained given their low adjusted R2 values. Similarly, when the two models are applied to portfolios double-sorted on size and investment, the results of the GRS test show that both models cannot be rejected. However, when the two models are applied to portfolios double-sorted on size and operating profitability, the results of the GRS test show that both models are strongly rejected which imply that both models leave substantial variations in returns related to size and profitability unexplained. Specifically, the biggest challenge to the two models is the big portfolio with weak profitability which generate a significantly negative intercept implying that the models overestimate its return.

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Musawa, Nsama, Prof Sumbye Kapena, and Dr Chanda Shikaputo. "A TEST OF THE FAMA-FRENCH FIVE FACTOR MODEL IN COMPARISON TO THE CAPITAL ASSET PRICING MODEL AT THE LUSAKA SECURITIES EXCHANGE." International Journal of Finance and Accounting 3, no. 1 (August 9, 2018): 35. http://dx.doi.org/10.47604/ijfa.684.

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Purpose: The capital asset pricing model (CAPM) is one of the basic models in the security price analysis.Many asset pricing models have been developed to improve the CAPM.Among such models is the latest Fama and French five factor model which is being empirically tested in various stock markets. This study tested the five factor model in comparison to the capital asset pricing model. Testing the Fama and French Five factor model in comparison to the CAPM was important because the CAPM is widely taken to be the basic model in the security price analysis. Methodology: The Fama and French methodology was used to test the data from an emerging market, the Lusaka Securities Exchange. A deductive, quantitative research design and secondary data from the Lusaka Securities Exchange was used. Data was analyzed using multiple regression. Results: The results indicate that the Five Factor model is better than the CAPM in capturing variation in the stock returns. The Adjusted R-squared for the five factor model from all individual portfolio sorting was 0.9, while that for the CAPM was 0.13 Unique contribution to theory, practice and policy: This study has contributed to theory in that it has added a voice to the ongoing debt on the suitability of the new Fama and French Five Factor model which is at the cutting hedge in finance theory.Further the study is from developing capital market. Keywords:, CAPM, Stock returns, Fama and French five factor model

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Hu, Ou. "APPLICABILITY OF THE FAMA-FRENCH THREE-FACTOR MODEL IN FORECASTING PORTFOLIO RETURNS." Journal of Financial Research 30, no. 1 (March 2007): 111–27. http://dx.doi.org/10.1111/j.1475-6803.2007.00205.x.

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Tauscher, Kathrin, and Martin Wallmeier. "Portfolio Overlapping Bias in Tests of the Fama-French Three-Factor Model." European Financial Management 22, no. 3 (August 13, 2015): 367–93. http://dx.doi.org/10.1111/eufm.12064.

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Grauer, Robert R., and Johannus A. Janmaat. "Cross-sectional tests of the CAPM and Fama–French three-factor model." Journal of Banking & Finance 34, no. 2 (February 2010): 457–70. http://dx.doi.org/10.1016/j.jbankfin.2009.08.011.

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付, 巍巍. "Empirical Study and Improvement of Fama-French Three-Factor Model Based on Heterogeneous Beliefs." Statistics and Application 09, no. 02 (2020): 237–47. http://dx.doi.org/10.12677/sa.2020.92026.

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Silvia, Ani, and Chikita Tiara Griska. "Empirical Evidence of Asset Pricing Based on Single Index Model, Fama, and French Three and Five-Factor Models in Indonesia Stock Exchange." Akurasi : Jurnal Studi Akuntansi dan Keuangan 4, no. 1 (June 20, 2021): 87–98. http://dx.doi.org/10.29303/akurasi.v4i1.82.

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This empirical test aims to estimate the beta parameters of the risk premium and other risk factors and compare the performance of the single-index model, Fama and Frech three and five-factor models. The sample used as the study object is companies in the property and real estate subsector with data collected from datastream Thomson Reuters from January 2014 to December 2018. The results are consistent with the previous studies that asset pricing using the Fama and French five-factor model can better explain stock returns than the other two models. The property and real estate subsector seems to provide a positive and statistically significant abnormal return, indicating that asset pricing with the three models is irrelevant to Indonesia. These results suggest that the stock market in Indonesia is still inefficient.

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Maeda, Brooke Alexandra. "Application of the q-factor Model to the Japanese Share Market." International Journal of Economics and Finance 9, no. 6 (May 5, 2017): 15. http://dx.doi.org/10.5539/ijef.v9n6p15.

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This paper tests the performance of the q-factor model proposed by Hou et al. (2015) to the Japanese share market. It examines ten years of monthly data for shares listed on both the First section and Second section of the Tokyo Stock Exchange. The results suggest that the q-factor model does not adequately explain returns for shares listed on the Tokyo Stock Exchange. For comparison purposes the data sample is applied to the Fama French three-factor model. The results of this analysis suggest that the Fama French three-factor model is more appropriate for the Japanese share market, and it provides evidence of a strong value premium. The factor which correlates to the value factor in the q-factor model was not significant, providing stronger support against the q-factor model as an adequate asset pricing model for Japan.

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Iqbal, Athar. "FAMA AND FRENCH THREE FACTOR MODEL APPLICATION IN THE PAKISTAN STOCK EXCHANGE (PSE)." IBT Journal of Business Studies 13, no. 1 (2017): 1–11. http://dx.doi.org/10.46745/ilma.jbs.2018.13.01.01.

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Purpose: This research has been carried out to test empirically the application of Fama and French three factor model on Pakistan Stock Exchange covering forty listed companies using annual data from 1984 to 2012. Methodology: Author selected excess return as dependent variable and three independent variables market risk, size of the firm and the book to market value of the firms in the portfolio. To test the hypotheses, author used panel least square method. Findings: Result shows that all independent variables are significant and have sign as predicted by theoretical understanding. From our result we interpret that three factors model explain returns in its simplified form on long term horizon better than single factor model like CAPM. Implication: The findings of the research paper suggest that developing economy like Pakistan investor and portfolio manager can better understand by applying multiple variable models and its modified form rather than only relying on CAMP covariance sensitivity model.

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Iqbal, Athar. "FAMA AND FRENCH THREE FACTOR MODEL APPLICATION IN THE PAKISTAN STOCK EXCHANGE (PSE)." IBT Journal of Business Studies 13, no. 1 (2017): 1–11. http://dx.doi.org/10.46745/ilma.jbs.2017.13.01.01.

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Purpose: This research has been carried out to test empirically the application of Fama and French three factor model on Pakistan Stock Exchange covering forty listed companies using annual data from 1984 to 2012. Methodology: Author selected excess return as dependent variable and three independent variables market risk, size of the firm and the book to market value of the firms in the portfolio. To test the hypotheses, author used panel least square method. Findings: Result shows that all independent variables are significant and have sign as predicted by theoretical understanding. From our result we interpret that three factors model explain returns in its simplified form on long term horizon better than single factor model like CAPM. Implication: The findings of the research paper suggest that developing economy like Pakistan investor and portfolio manager can better understand by applying multiple variable models and its modified form rather than only relying on CAMP covariance sensitivity model.

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Adami, Roberta, Orla Gough, Suranjita Mukherjee, and Sheeja Sivaprasad. "An empirical analysis of the performance of pension funds: evidence from UK." Studies in Economics and Finance 31, no. 2 (May 27, 2014): 141–55. http://dx.doi.org/10.1108/sef-10-2012-0118.

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Purpose – This paper aims to examine the investment performance of pension funds in the UK using the three standard performance measurement models, the capital asset pricing model (CAPM), Fama-French model and the Carhart model. Design/methodology/approach – The authors use the CAPS-Mellon survey data for the period 1990-2008 and employ the three standard performance measurement models, the CAPM, Fama-French model and the Carhart model in assessing the investment performance of the pension funds. Findings – The authors show that the abnormal returns of pension funds cannot be fully explained by size, book-to-market values, market returns, momentum and the term spread. The authors find larger abnormal returns in bond than in equity portfolios and that smaller funds outperform larger funds. The paper also shows that the addition of the momentum factor does not improve on the three-factor Fama-French model. The authors find that pension funds exhibit superior performance relative to the linear factor models. Research limitations/implications – First, this study contributes to the extant literature on pension funds performance. Future research may also extend the authors' work to incorporate economic, tax, political and legal differences across the countries on the performance of pension funds. Second, due to data constraints, this study excludes the default probability of corporate bonds as an additional variable in their tests on bond returns. Future work may add the default probability as an additional variable whilst examining bond returns. Practical implications – The authors believe that the findings will be considerable food for thought for fund managers who continuously attempt to explore opportunities to provide a higher return to investors. Originality/value – To the authors' knowledge, this is the first comprehensive study that investigates the performance of UK equity and bond pension funds relative to standard linear factor models such as the CAPM, Fama and French, and Carhart.

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Kiymaz, Halil. "Factors influencing SRI fund performance." Journal of Capital Markets Studies 3, no. 1 (July 8, 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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Mohammad Salameh, Hussein. "Application of asset pricing models: evidence from Saudi exchange." Investment Management and Financial Innovations 17, no. 1 (April 6, 2020): 348–68. http://dx.doi.org/10.21511/imfi.17(1).2020.29.

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The Saudi Arabia Stock Exchange (Tadawul) is one of the biggest emerging Stock Exchanges in the Middle East region. Therefore, this research aims to apply Fama and French (2015) 5-factor model on Tadawul, and compares it with the Fama and French 3-factor model and CAPM to check the applicability of the models in Tadawul and the identity of the factors that can affect stock returns. Furthermore, the Generalized Method of Moments (GMM) regression has been implemented to examine the impact between the variables in the models. Empirically, the results show that Fama and French (2015) 5-factor model is the most consistent model in comparison to the other two models in terms of explaining the cross-section of average stock returns in Tadawul. However, it is not the best according to the intercepts results of all the regressions in 2x3, 2x2, or 2x2x2x2 sorts. Besides, Fama and French (2015) 5-factor model has the highest explanatory power in most of the portfolios based on the adjusted R2 regardless of the sort (2x3, 2x2, or 2x2x2x2). Finally, the results conclude that Fama and French (2015) 5-factor model can be an applicable model in Tadawul but only market and size can affect the stock returns, while the value, profitability, and investment cannot. Accordingly, the author recommends that, as a continuation of this research, further research can be done, which investigates a model with additional factors like momentum and illiquidity.

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Sehgal, Sanjay, and A. Balakrishnan. "Robustness of Fama-French Three Factor Model: Further Evidence for Indian Stock Market." Vision: The Journal of Business Perspective 17, no. 2 (June 2013): 119–27. http://dx.doi.org/10.1177/0972262912483526.

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Sinlapates, Parichat, and Nongnit Chancharat. "Is value premium driven by risk in the stock exchange of Thailand A comparison of the Fama/French three-factor model and Fama/French five-factor model." International Journal of Monetary Economics and Finance 14, no. 4 (2021): 1. http://dx.doi.org/10.1504/ijmef.2021.10039408.

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Chancharat, Nongnit, and Parichat Sinlapates. "Is value premium driven by risk in the stock exchange of Thailand A comparison of the Fama/French three-factor model and Fama/French five-factor model." International Journal of Monetary Economics and Finance 14, no. 4 (2021): 314. http://dx.doi.org/10.1504/ijmef.2021.116985.

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Zaghouani Chakroun, Amal, and Dorra Mezzez Hmaied. "Evidence on aggregate volatility risk premium for the French stock market." Managerial Finance 46, no. 1 (October 31, 2019): 72–91. http://dx.doi.org/10.1108/mf-11-2018-0535.

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Purpose The purpose of this paper is to examine alternative six- and seven-factor equity pricing models directed at capturing a new factor, aggregate volatility, in addition to market, size, book to market, profitability, investment premiums of the Fama and French (2015) and Fama and French’s (2018) aggregate volatility augmented model. Design/methodology/approach The models are tested using a time series regression and Fama and Macbeth’s (1973) methodology. Findings The authors show that both six- and seven-factor models best explain average excess returns on the French stock market. In fact, the authors outperform Fama and French’s (2018) model. The authors use sensitivity of aggregate volatility of a stock VCAC as a proxy to construct the aggregate volatility risk factor. The spanning tests suggest that Fama and French’s (1993, 2015, 2018) and Carhart’s (1997) models do not explain the aggregate volatility risk factor FVCAC. The results show that the FVCAC factor earns significant αs across the different multifactor models and even after controlling for the exposure to all the other in Fama and French’s (2018) model. The asset pricing tests show that it is systematically priced. In fact, the authors find a significant and negative (positive) relation between the aggregate volatility risk factor and the excess returns in the French stock market when it is rising (falling), in addition, periods with downward market movements tend to coincide with high volatility. Originality/value The authors contribute to the related literature in several ways. First, the authors test two new empirical six- and seven-factor model and the authors compare them to Fama and French’s (2018) model. Second, the authors give new evidence about the VCAC, using it for the first time to the authors’ knowledge, to construct a volatility risk premium.

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Jackson, Leonard A. "An application of the Fama–French three-factor model to lodging REITs: A 20-year analysis." Tourism and Hospitality Research 20, no. 1 (September 12, 2018): 31–40. http://dx.doi.org/10.1177/1467358418798141.

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This study applied the Fama–French three-factor model to model the returns of 33 US publicly traded lodging real estate investment trusts over a 20-year period. Results indicated that lodging real estate investment trusts that were significantly correlated with all the three factors had the greatest number of years in the market and the highest mean market capitalization, while those that were not significantly correlated with any of the three factors existed in the market for shorter periods and had the lowest mean market capitalization. Findings also indicated that the higher the market capitalization of real estate investment trusts, the more exposure they faced in the market. Results also suggest that the longer lodging real estate investment trusts existed in the marketplace, the greater their exposure to market risk. Overall, empirical results of this research are reasonably consistent with the Fama–French three-factor model as there is evidence of market, size, and book-to-value factors in the lodging real estate investment trusts market.

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Ahmed, Shamim, Ziwen Bu, and Daniel Tsvetanov. "Best of the Best: A Comparison of Factor Models." Journal of Financial and Quantitative Analysis 54, no. 4 (September 14, 2018): 1713–58. http://dx.doi.org/10.1017/s0022109018000947.

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We compare major factor models and find that the Stambaugh and Yuan (2016) 4-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q-factor model takes second place and the Fama and French (2015) 5-factor model and the Barillas and Shanken (2018) 6-factor model jointly take third place. The pairwise cross-sectional R2 and the multiple model comparison tests show that the Hou et al. (2015) q-factor model, the Fama and French (2015) 5-factor and 4-factor models, and the Barillas and Shanken (2018) 6-factor model take equal first place in the horse race.

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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 (May 15, 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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Aronne, Alexandre, Luigi Grossi, and Aureliano Angel Bressan. "Identifying outliers in asset pricing data with a new weighted forward search estimator." Revista Contabilidade & Finanças 31, no. 84 (December 2020): 458–72. http://dx.doi.org/10.1590/1808-057x201909620.

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ABSTRACT The purpose of this work is to present the Weighted Forward Search (FSW) method for the detection of outliers in asset pricing data. This new estimator, which is based on an algorithm that downweights the most anomalous observations of the dataset, is tested using both simulated and empirical asset pricing data. The impact of outliers on the estimation of asset pricing models is assessed under different scenarios, and the results are evaluated with associated statistical tests based on this new approach. Our proposal generates an alternative procedure for robust estimation of portfolio betas, allowing for the comparison between concurrent asset pricing models. The algorithm, which is both efficient and robust to outliers, is used to provide robust estimates of the models’ parameters in a comparison with traditional econometric estimation methods usually used in the literature. In particular, the precision of the alphas is highly increased when the Forward Search (FS) method is used. We use Monte Carlo simulations, and also the well-known dataset of equity factor returns provided by Prof. Kenneth French, consisting of the 25 Fama-French portfolios on the United States of America equity market using single and three-factor models, on monthly and annual basis. Our results indicate that the marginal rejection of the Fama-French three-factor model is influenced by the presence of outliers in the portfolios, when using monthly returns. In annual data, the use of robust methods increases the rejection level of null alphas in the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor model, with more efficient estimates in the absence of outliers and consistent alphas when outliers are present.

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Journal articles on the topic 'Fama and French three-factor model'

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