Common Risk Factors in Stock Returns in the MENA Region

Abstract

Manuscript type: Research paper Research aims: This paper examines risk factors comprising size, value, profitability, investment, momentum and illiquidity to see if they are relevant for the stock markets in the Middle East and North Africa (MENA) region. Design/Methodology/Approach: Stock market data, from January 2007 to December 2015, are used to construct the risk factors for the stock market in the MENA region. The single factor models and the multifactor models are used to explain the constructed portfolios' excess returns. Research findings: Findings show that the risk factors of size, value and profitability are the most important to be applied in asset pricing models within the MENA region. In addition, most of the models analysed in this study are unable to perfectly capture the average excess returns of the datasets, with the seven-factor model performing better than the other competing models. Theoretical contribution/Originality: This paper is possibly one of the first to construct and apply the above-mentioned risk factors in the MENA markets. It further proposes using two additional risk factors, such as momentum and illiquidity, within the Fama and

Do Islamic fundamental weighted indices outperform their conventional counterparts? An empirical investigation during the crises in the MENA region

“…The Islamic FW portfolios underperform when compared to the non-Islamic FW portfolios using the Sharpe ratio and the Sortino ratio. However, they outperform non-Islamic FW portfolios at the 10% significant level using the Fama and French (2015) five-factor model, while they perform similarly using the annual excess return, the CAPM, the Fama and French (1993) three-factor model, and the Abadi and Silva (2019) seven-factor model.…”

“…Treynor ratio, the Sharpe ratio, and the information ratio. The more robust risk-adjusted performance measures are based on the Fama and French (1993) three-factor model, the Fama and French (2015) five-factor model, and the seven-factor model proposed by Abadi and Silva (2019) that adds momentum and illiquidity factors.…”

“…Jensen's alpha is obtained using the CAPM. Alphas in the context of Fama and French (1993) three-factor model, Fama and French (2015) five-factor model, and Abadi and Silva (2019) seven-factor model that includes the momentum and illiquidity factors are also reported. The coefficients of the seven-factor model are also presented.…”

“…Second, this research extends the methods applied in prior literature. In particular, more robust performance measures based on the Fama and French (1993) three-factor model, the Fama and French (2015) five-factor model, and the Abadi and Silva (2019) seven-factor model that includes momentum and illiquidity factors are used along with the more traditional risk-adjusted measures to check the robustness of our results.…”

Do fundamental portfolios outperform in the MENA equity markets?

“…First, it is the first study that analyses and compares the performance of FW portfolios to that of a CW portfolio in the MENA region. Second, it also contributes by using more robust risk-adjusted performance measures in the context of multi-factor models, namely the Fama and French (2015) five-factor model and a seven-factor model that includes momentum and illiquidity factors (Abadi and Silva, 2017). Third, this study contributes to the literature by using different weighting schemes, different concentration levels and different sub-regions to analyze the performance of the constructed portfolios.…”