Too Small or Too Low? New Evidence on the 4-Factor Model

Brighi, Paola; d’Addona, Stefano; Bina, Antonio Carlo Francesco Della

doi:10.2139/ssrn.1726022

Cited by 3 publications

(3 citation statements)

References 49 publications

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“…In many studies done with regard to developed markets, though the R 2 and GRS F-statistic improve when moving from CAPM to the four-factor model (through the three-factor model), they reject the four-factor model based on the GRS F-test. In addition, Brighi et al (2010) find that adding the momentum factor does not improve the performance of the three-factor model in its application in the Milan Stock Exchange. Looking at developing markets, Hasnaoui and Ibrahim (2013) accept the four-factor model and reject the three-factor model based on the GRS F-test for their study done on the Tunis Stock Exchange; Unlu (2013) accepts both the three-factor model and four-factor model for the Istanbul Stock Exchange based on the GRS F-test.…”

Section: Asset Pricing Testsmentioning

confidence: 89%

“…In terms of its explanatory power, the four-factor model performs better than the Fama and French (1993) three-factor model in developed markets; however, in terms of the GRS F-test the results are not consistent in rendering regressions where the true intercepts are jointly zero (Bello, 2008;Brighi et al, 2010;Fama and French, 2012;Humphrey and O'Brien, 2010). Conversely when the GRS F-test is applied to emerging and developing markets the four-factor model is found to be more successful (Nartea et al, 2009;Lam et al, 2009;Lai and Lau, 2010;Cakici et al, 2013;Unlu, 2013;Hasnaoui and Ibrahim, 2013;Vo, 2015;Balakrishnan, 2015).…”

Section: Introductionmentioning

confidence: 99%

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

Abeysekera

Nimal

2017

AAJFA

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Abstract:There have been numerous studies that have attempted to explain the cross-sectional variation in average returns in developed and emerging markets. However, there is a dearth in the published evidence of research that has looked at frontier markets regarding this aspect. Sri Lanka is considered to be a frontier market and hence the objective of this study is to test the ability of the Carhart four-factor model to explain the variation in the cross-section of average stock returns in the Colombo Stock Exchange (CSE) and to evaluate it in comparison to the capital asset pricing model (CAPM) and the Fama and French three-factor model. The study finds that the four-factor model, incorporating the market factor, size factor, value factor and momentum factor, provides a satisfactory explanation of the variation in the cross-section of average stock returns in the CSE. Further, it is found that the four-factor model performs better than the CAPM and the three-factor model.

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Section: Asset Pricing Testsmentioning

confidence: 89%

Section: Introductionmentioning

confidence: 99%

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

Abeysekera

Nimal

2017

AAJFA

View full text Add to dashboard Cite

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“…The inferior performance of the four-factor model is also being witnessed by Nartea et al (2009) in the New Zealand stock market. Similar evidence of the weaker performance of the fourfactor model was found in the Italian stock market by Brighi et al (2010). The period also witnessed the introduction of liquidity augmented three-factor model which is another effort being done (Chen et al, 2011) in the Chinese stock market wherein the results revealed the better explanatory power of the new four-factor model.…”

Section: Literature Reviewmentioning

confidence: 54%

Untitled

2022

IMS

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IIMS Journal of Management Science is the scholarly journal of the Indian Institute of Management Shillong that publishes research contributions in all areas of management and its allied discipline since 2010. It follows a double blind peerreview process and publishes two issues a year. While submissions from all management domains and their allied disciplines are welcome, the journal encourages articles on cross-functional management domains with crossfunctional managerial or societal problems and implications.The journal looks for original and insightful research articles that create differential research traditions to shed new evidence on contemporary challenges faced by management practitioners, policymakers, academicians, and others. The journal envisages publishing rigorous research output backed by qualitative or quantitative methods. The articles that establish the intuition, argument, and implications using clear and concise English and improve our understanding of the management theory and practice knowledge are preferred. All contributions should be well written in English and supported by either original/empirical data or a well-justified theoretical or mathematical model. Aims and ScopeIIMS Journal of Management Science publishes original research and review articles that demonstrate theoretical and empirical research in management discipline through qualitative or quantitative methods. It follows a double-blind peer review policy.The articles in all domains in management and its allied discipline, including but not limited to,

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Are Fama–French Factors Relevant? A Sub-Sectorial Analysis

Tripathi¹,

Sapra²,

Gupta³

2022

IMS

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The purpose of the study is to empirically examine the sectoral-specific performance of the five-factor asset pricing model comprising of 17-years’ data in the Indian stock market using the Fama–French methodology. The results highlighted the better performance of a five-factor model in the “Basic Material” and “Oil” industries. However, for the “consumer” industry, there is an existence of other risk factors which can better explain the portfolio’s excess returns. The result further demonstrates the better explanatory power of the five-factor model in explaining the portfolio excess return for the “Industrial” sector. However, the findings support the better applicability of market mode for the “financial” sector in the Indian stock market. For the “Health Care” and “Technology” industries, the addition of two more risk factors does not lead to much improvement in the model’s explanatory power. The current study evaluating the applicability of the asset pricing model will have a practical implication for portfolio managers, policymakers, researchers, and academicians in evaluating the performance of the portfolios on a sectoral basis and in determining the cost of equity in the overall cost of capital. The study will also aid the investors in their investment decision-making by helping them to identify the average stock return in different sectors.

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Too Small or Too Low? New Evidence on the 4-Factor Model

Cited by 3 publications

References 49 publications

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

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

Untitled

Are Fama–French Factors Relevant? A Sub-Sectorial Analysis

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