CAPM augmented with liquidity and size premium in the Croatian stock market

Minović, Jelena; Živković, Boško

doi:10.1080/1331677x.2014.952107

Cited by 18 publications

(10 citation statements)

References 25 publications

(42 reference statements)

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“…Success of the Fama-French three factor model is, basically, a divergence in CAPM and emerged as a most popular explanation for the ongoing argument on asset pricing. However, several studies in the financial literature (e.g., Groenewold Fraser 1997;Beltratti and Tria 2002;Drew and Veeraraghan 2002;Mirza and Shahid 2008;Guo et al 2008;Lischewski and Voronkova 2012;Cakici et al 2013;Minović and Živković 2014;Baek and Bilson 2015;Boamah 2015;Ceylan et al 2015;Zaremba and Konieczka 2015;Elgammal et al 2016;Chung et al 2016; Xie and Qu 2016; Kubota and Takehara 2017) attribute mixed evidence regarding the existence, significance, augmented versions and time varying behavior of the risk premiums and the three-factor model in the stock markets of USA, Europe, Australia, Asia and Africa by applying various models and portfolio construction methodologies. Daniel and Titman (1997) examined the Fama and French (1993) and demonstrated that size and book-to-market factors are highly correlated with the average stocks returns but there is no separate distress and most of the co-movement of the value stocks is not due to distressed stocks being exposed to a unique distress factor.…”

Section: Prior Related Studiesmentioning

confidence: 99%

Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market

Ali

Jiang

2018

Economies

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The paper empirically investigates three different methods to construct factors and identifies some pitfalls that arise in the application of Fama-French's three-factor model to the Pakistani stock returns. We find that the special features in Pakistan significantly affect size and value factors and also influence the explanatory power of the three-factor model. Additionally, the paper examines the ability of the three factors to predict the future growth of Pakistan's economy. Using monthly data of both financial and non-financial companies between 2002 and 2016, the article empirically investigates and finds that: (1) size and book-to-market factors exist in the Pakistani stock market, two mimic portfolios SMB and HML generate a return of 9.15% and 12.27% per annum, respectively; (2) adding SMB and HML factors into the model meaningfully increases the explanatory power of the model; and (3) the model's factors, except for value factor, predict future gross domestic product (GDP) growth of Pakistan and remain robust. Our results are robust across sub-periods, risk regimes, and under three different methods of constructing the factors.

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Section: Prior Related Studiesmentioning

confidence: 99%

Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market

Ali

Jiang

2018

Economies

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“…It is noticed that the sample and liquidity proxy used determines the preciseness of liquidity risk measurement. Testing standard and Liquidity CAPM (LCAPM) on Croatian stock market for the period from 2005-2009 showed that LCAPM performs better in explaining stock returns than the CAPM [17]. Authors assumed that classical CAPM does not capture liquidity risk that is the key problem on such small and underdeveloped markets.…”

Section: Literature Reviewmentioning

confidence: 99%

Turnover Based Illiquidity Measurement as Investment Strategy on Zagreb Stock Exchange

Vidović¹

2020

AJOR

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This paper deals with illiquidity measurement of stocks on Croatian Stock market. Illiquidity measures used in this paper are daily ratio of absolute stock return to its dollar volume (ILLIQ) and RCT (Relative change in turnover). Aim of this paper is to show that illiquidity measure RCT makes clear distinction between liquid and illiquid stocks that should be reflected through investment strategy where investment in RCT based illiquid portfolios outperforms investment in ILLIQ based portfolios and CROBEX index. Research was carried out on eighteen stocks from Zagreb Stock Exchange (ZSE) which are constituents of CROBEX index. Portfolios of liquid and portfolios of illiquid stocks based on results of illiquidity measurement were constructed. Behaviour in terms of return and volatility of these portfolios in following one-year period was observed. Results showed that portfolios formed using RCT as measure of illiquidity constantly outperformed CROBEX index and ILLIQ based portfolios. Returns of RCT based portfolios had lower standard deviation and were more stable than ILLIQ based portfolios in whole period. RCT as a measure of illiquidity produces valuable information on stock liquidity that can be exploited as investment strategy reflecting itself in larger expected returns of RCT portfolios in future period than expected returns of ILLIQ based portfolios and market.

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“…Eraslan (2013) tests the validity of the Fama-French three-factor asset pricing model on the Istanbul stock exchange and conclude that the model has modest explanatory power to explain variations in excess portfolio returns. Minović and Živković (2014) use augmented CAPM by including the factor of liquidity and size on the Croatian stock market. Results indicate that liquidity augmented model performs better in explaining stock returns than the standard CAPM.…”

Section: Brief Review Of Empirical Studies In Asset Pricingmentioning

confidence: 99%

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

Shaikh

Ismail

Ismail³

et al. 2019

IMEFM

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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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CAPM augmented with liquidity and size premium in the Croatian stock market

Cited by 18 publications

References 25 publications

Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market

Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market

Turnover Based Illiquidity Measurement as Investment Strategy on Zagreb Stock Exchange

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

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