Comparision Between R-Campand and Fama and French three- Factor Model in Predicting the Expected Return in Tehran Stock Exchange

Subject Areas : Financial Knowledge of Securities Analysis

Z. Amirhosseini ¹ , M. Khosraviani ²

1 - نویسنده اول و مسئول مکاتبات)
2 - ندارد

Received: 2009-10-02 Accepted : 2010-01-15 Published : 2009-12-22

Keywords: Revised Capital Asset Pricing , Fama and French Three Factor M, Expected Return, Risk,

Abstract :

In this paper we examine two capital asset pricing in tehran stock exchange, R-CAPM and fama and french‘s model to find best model according to condtion of Tehran stock exchange . RCAPM has a higher explanatory power to predict expected return. In this paper we examine two models in three perspective 1- EXPECTED RETURN EQUALS ACCTUAL RETURN WITH LAG +1. 2- EXPECTED RETURN EQUALS SIMPLE AVERAGE OF PAST RETURNS 3-EXPECTED RETURN EQUALS GEOMETRIC AVERAGE OF PAST RETURNS We consider expected return in each perspective as dependent variable and betas obtained from two models as independent variable. Three methods have been implemented to test hypothesis from 3 aforesaid perspective include Pearson correlation test, regression analysis and forecasting adaptation analysis. After examination we understand R-CAPM has more explanatory power in predicting expected return with first perspective.