Performance Evaluation of risk premium measurement models: q-theory asset pricing model against three factor model of fama and french
Subject Areas : Journal of Investment Knowledge
Gholamreza kordestani
1
(
Associate professor ,Department of Accounting, Imam Khomeini International University, Qazvin
)
Mozhde Ghasemi
2
(
Graduate student , Department of Accounting, Imam Khomeini International University, Qazvin
)
Keywords: q-theory Asset pricing model, Capital Asset Pricing Model, Three Factor Model of Fama and, Portfolio risk Premium, Investment Factor, Profitability Factor,
Abstract :
Financial scholars have made valuable efforts to measure risk premium. Recently, Chen et al (2010) proposed a three factor model based on market factor, investment factor, and profitability factor for explaining stock return and called it q-theory model. Prior researches have shown that this model reduces the magnitude of the abnormal returns of a wide range of anomalies. This research examines the performance of new model in explaining the risk premium of the individual stock and portfolio of stock, and compares it with the performance of CAPM and three factor model of Fama and French in stock exchange market. Sample under investigation consist of 72 listed companies for the period of 1386-1391. The results show that risk premium of stocks has a significant relationship with the sensitivity of its returns to investment and profitability factors. Furthermore, q-theory model significantly excel CAPM in explaining risk premium of firm size, book to market value and momentum portfolios. But it significantly excels three factor model of Fama and French just in explaining the risk premium of momentum portfolios.