Four Factor Model in Indian Equities Market

Abstract

We compute the Fama-French and momentum factor returns for the Indian equity market for the October 1993 -December 2013 period using data from CMIE Prowess. We differ from the previous studies on this topic, in the Indian market, in several significant ways. First, we cover a greater number of firms relative to the existing studies. Second, we exclude illiquid firms to ensure that the portfolios are investible.Third, we have classified firms into small and big using a more appropriate cut-off considering the distribution of firm size. Fourth, as there are many instances of vanishing of public companies in India, we have computed the returns with a correction for the survival bias. During the period from January 1994 to December 2014, the average annual return of the momentum factor was 21.9%; the average annual return on the value portfolio (HML) was 15.3%; that of the size factor (SMB ) nearly 0%; and the average annual excess return on the market factor (MRP ) was 11.5%. This is a revised version of our earlier paper on this topic. The revision is carried out to primarily accommodate the data of firms which are retrospectively added to the prowess database by CMIE. The time series of daily, monthly and yearly returns on the factors and the underlying portfolios are made available at an online data library. The authors would update the library on a monthly basis.

The four-factor model and stock returns: evidence from Sri Lanka

“…Similar to Fama and French (2012), the average size factor is found to be close to zero in the present study. These results are also consistent with Agarwalla et al (2013) who report an average size factor of a negative 0.06% per month in India. The average value factor per month is 0.54% (t = 1.99) in the present study; Fama and French (2012) report an average value factor per month ranging from 0.33% (North America) to 0.62% (Asia Pacific).…”

“…The average value factor per month is 0.54% (t = 1.99) in the present study; Fama and French (2012) report an average value factor per month ranging from 0.33% (North America) to 0.62% (Asia Pacific). Agarwalla et al (2013) in their study find the monthly value factor to be 0.50% in India. Further, in the present study the value factors are larger in big-cap stocks than in small-cap stocks.…”

“…The results of the present study are similar to the findings of Fama and French (2012) with regard to Japan, where the average momentum factor was found to be a very minute 0.08% per month. It is interesting to note that Agarwalla et al (2013) report a fairly high monthly momentum factor of 1.77% in India.…”

“…Fama and French (2012) in their study find the market factor to range between -0.12% (Japan) and 0.86% (Asia Pacific) per month with a global factor of 0.44%. Agarwalla et al (2013) report a monthly market factor of 0.29% in India. For the period under consideration an average market factor of 1.17% (t = 2.00) per month is seen with respect to the CSE.…”

Corporate governance and firm performance relationship: Implications for risk‐adjusted return behavior

“…The effective sample period employed for our portfolio level analysis runs from September 2006 to March 2016 (115 monthly observations). Data for the three systematic risk factors (MRKT, i.e., excess market returns over the risk free rate, SMB, i.e., small minus large, HML, i.e., high minus low) and for risk‐free rates ( R f ) are collected from the data library of the Indian Institute of Management in Ahmedabad (Agarwalla, Jacob, & Varma, ). The three selected systematic risk factors for multifactor asset pricing model specification are consistent with Fama and French's () approach.…”