Tests of a Four-Factor Asset Pricing Model: The Stock Exchange of Thailand

Pojanavatee, Sasipa

doi:10.13106/jafeb.2020.vol7.no9.117

Cited by 4 publications

(3 citation statements)

References 32 publications

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“…Moreover, a considerable quantity of research studies has made substantial contributions in the discipline of APM by postulating the determinants of expected stock returns and capturing capability of associated risk premiums. Davidson et al (2002); Fama and French (1993) argued that firm-specific fundamental variables such as firm size, B|M ratio, dividend yield, momentum capture implicit risk measures which investors demand to be compensated as reward of bearing risks that explain the variation in stock returns, (Pojanavatee, 2020;Shaharuddin et al, 2018;Acheampong & Swanzy, 2016;Lau et al, 2002). Based on beta analysis, there are two versions of CAPM findings such as static OLS where beta coefficient is considered to be constant over time and alternative is time varying beta coefficient.…”

Section: Literature Reviewmentioning

confidence: 99%

An empirical investigation of Tobin’s-Q augmented various Asset Pricing Models: Evidence from Pakistan

Azam

2022

JSSMS

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Despite the strong growing popularity of Asset Pricing Models, it is difficult to estimate which factor contributes significantly in explaining average excess portfolio returns particularly in emerging equity market. Using an extensive sample over Jan-1994-Dec-2020 period, this paper aims to extend the literature by augmenting Tobin-Q adjusted risk premium with various unconditional standard asset pricing models which seeks to postulate the nexus between expected portfolios stock returns and risk-factors using monthly data of 521 enlisted financial and non-financial firms from Pakistan Stock Exchange. The multiple time-series OLS regression analysis models are employed to analyze Tobin-q risk-factor augmented with various factors models. Fama and French (2015) five-factor model excessively explains average equity returns however, our results reveal that size, value, profitability and particularly Tobin-q factor are significant while market and investment factor are redundant in Pakistan Stock Exchange. The momentum factor shows weak results in describing average equity returns in the market. Based on Gibbons, Ross and Shanken (1989) test, our findings support Tobin-Q augmented Fama and French (2015) five-factor model as appropriate for pricing stocks returns in emerging market of Pakistan. The investors, portfolio managers and policy-makers should assume the Tobin-q factor while constructing diversified portfolios for investments in Pakistan Stock Exchange

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Section: Literature Reviewmentioning

confidence: 99%

An empirical investigation of Tobin’s-Q augmented various Asset Pricing Models: Evidence from Pakistan

Azam

2022

JSSMS

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“…Despite the theoretical failure of this model as well as its failure to capture anomalies such as size, book-tomarket and long-term past returns, till now, most financial managers in the U.S and all over the world are still using this model because it depends on one parameter (beta) and is relatively straightforward compared to any other model. On the Stock Exchange of Thailand, Pojanavatee (2020) showed that systematic risk measured by the beta coefficient did play a significantly crucial role in the prediction and formation of the rate of return. Phuoc, Kim and Su (2018) found that the robust Trimmed Square (LTS) gives more accurate estimate than the Ordinary Least Square (OLS) and daily return data provide much better estimate than monthly return data.…”

Section: Traditional Stagesmentioning

confidence: 99%

Analysis the Determinants of Risk Factor Model for the Jordanian Banking Stocks

Gharaibeh¹,

Al-Qudah²

2020

JAFEB

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The purpose of this study is to analyze the determinants of risk factor model for the Jordanian banking stocks from 2006 to 2018. This study employs the Five-factor Fama and French's (2015) methodology and uses the annual returns of all Jordanian banks including 2 Islamic and 13 commercial banks listed on the Amman Stock Exchange (ASE) over a period of 13 years. The results show that the factors of value and profitability have an important role in evaluating the expected return in Jordanian banking stocks. Moreover, the value HML and profitability RMW factors provide the highest cumulative returns among these five factors, while the investment CMA and size SMB factors are still around zero cumulative returns. For the market factor, it provides the least negative cumulative returns. The results showed that the largest correlation is between value and investment factors which means that banks with a high book to market value become banks with a conservative investment strategy. The result of the sub-periods confirmed the value and profitability results. The findings of this study suggest that the five-factor Fama and French model is the choice of building an investment portfolio, especially the factors of value and profitability.

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“…The level of risk is indicated by the variable β (beta) and return is stated to have a positive and linear relationship with that variable. The higher the β of a stock shows, the greater the risk contained in it and will affect the increase in return (Pojanavatee, 2020).…”

mentioning

confidence: 99%

A New Measure of Asset Pricing: Friction-Adjusted Three-Factor Model

Nurhayati¹,

Endri²

2020

JAFEB

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In unfrictionless markets, one measure of asset pricing is its height of friction. This study develops a three-factor model by loosening the assumptions about stocks without friction, without risk, and perfectly liquid. Friction is used as an indicator of transaction costs to be included in the model as a variable that will reduce individual profits. This approach is used to estimate return, beta and other variable for firms listed on the Indonesian Stock Exchange (IDX). To test the efficacy of friction-adjusted three-factor model, we use intraday data from July 2016 to October 2018. The sample includes all listed firms; intraday data chosen purposively from regular market are sorted by capitalization, which represents each tick size from the biggest to smallest. We run 3,065,835 intraday data of asking price, bid price, and trading price to get proportional quoted half-spread and proportional effective half-spread. We find evidence of adjusted friction on the three-factor model. High/low trading friction will cause a significant/insignificant return difference before and after adjustment. The difference in average beta that reflects market risk is able to explain the existence of trading friction, while the difference between SMB and HML in all observation periods cannot explain returns and the existence of trading friction.

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Tests of a Four-Factor Asset Pricing Model: The Stock Exchange of Thailand

Cited by 4 publications

References 32 publications

An empirical investigation of Tobin’s-Q augmented various Asset Pricing Models: Evidence from Pakistan

An empirical investigation of Tobin’s-Q augmented various Asset Pricing Models: Evidence from Pakistan

Analysis the Determinants of Risk Factor Model for the Jordanian Banking Stocks

A New Measure of Asset Pricing: Friction-Adjusted Three-Factor Model

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