Test of Five factors Model; Evidence from Tehran Stock Exchange
Subject Areas : Journal of Investment Knowledge
Maryam Davallou
1
(Assistant Professor, Shahid Beheshti University)
Zohreh Gholami
2
(Master of Finance Management, Shahid Beheshti University)
Keywords: Five-factor model, investment, Operating Profitibility,
Abstract :
Fama and French (2015) with the addition of two more elements - operating profitability and investment - developed their three-factor model and offered a new five-factor model. This study aimed to test the Fama-French five-factor model compared with the three-factor and four-factor models. For this purpose, a sample of 184 companies listed in Tehran Stock Exchange during the years 1380 to 1393 is examined. For testing the model, Portfolio analysis and test of Gibbons et al (1989) is used. The results of this study revealed that operating profitability and investment are able to explain the return of portfolio. Fama-French five-factor model explains the excess return better than other models in Tehran Stock Exchange. Then four-factor model in different portfolios, depending on the factors made them, have better performance than three-factor models.
* Breeden, D., 1979. An intertemporal asset pricing model with stochastic consumption and investment opportunities. Journal of Financial Economics 7, 265-296.
* Breeden, D., Gibbons, M., Litzenberger, R., 1989. Empirical tests of the consumption oriented CAPM. Journal of Finance 44, 231-262.
* Chen, L., Novy-Marx, R., Zhang, L., 2010. An alternative three-factor model. Working Paper.
* Chiah, M., Chai, D., Zhong, A.,2015. A Better Model? An Empirical Investigation of the Fama-French Five-Factor Model in Australia. Working Paper
* Cochrane, J. H., 1996. A cross-sectional test of an investment-based asset pricing model. Journal of Political Economy 104, 572-621.
* Cooper, M. J., Gulen, H., Schill, M.J., 2008. Asset growth and the cross-section of stock returns. Journal of Finance 63, 1609-1651.
* Fama, E. F., French, K. R., 1992. The cross-section of expected stock returns. Journal of Finance 47, 129-176
* Fama, E. F., French, K. R., 1993. Common risk factors in the returns on bonds and stocks. Journal of Financial Economics 33, 3-56.
* Fama, E. F., French, K. R., 1996. Multifactor explanations of asset pricing anomalies. Journal of Finance 51, 55-84.
* Fama, E. F. and French, K. R., 2015. A Five-Factor Asset Pricing Model. Journal of Financial Economics 116, 1-22
* Indian Stock Market and the Asset Pricing Models Indian Stock Market and the Asset Pricing Models Indian Stock Market and the Asset Pricing Models Harshita Harshita and Opens overlay S. Singh, Opens overlay Surendra S. Yadav , 2015. Indian Stock Market and Asset Pricing Models. Procedia Economics and Finance 30, 294-304
* Jegadeesh, N., Titman, S., 1993. Returns to buying winners and selling losers: implications for stock market efficiency. Journal of Finance 48, 65-91.
* Kim, D., 2010. Information uncertainty risk and the seasonality in international stock markets. Asia-Pacific Journal of Financial Studies 39, 229-259.
* Kim, D., 2006. On the information uncertainty risk and the January effect. Journal of Business 79, 2127-2162.
* Lintner, J., 1965. The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics 47, 13–37.
* Martins, C., Jr, W., 2015. Pricing Assets with Fama- French 5-Factor Model: a Brazilian Market Novelty. Conference Paper
* Ross, S., 1976. The arbitrage theory of capital asset pricing. Journal of Economic Theory 13, 341–360.
* Sharpe, W. F., 1964. Capital asset prices: a theory of market equilibrium under conditions of risk. Journal of Finance 19, 424-444.
* Yao, T., Yu, T., Zhang, T., Chen, S., 2011. Asset growth and stock returns. Pacific-Basin Finance Journal 19, 115-1
_||_