An examination of conditional asset pricing models in the Australian equities market

Annette Nguyen, Robert William Faff and Philip Gharghori

Applied Financial Economics Letters, 2007, vol. 3, issue 5, pages 307-312

Abstract: This article examines the link between macroeconomic variables and equity returns in Australia by testing conditional asset pricing models. We find that conditioning the Fama-French model with a series of macroeconomic variables does not considerably improve its performance. However, we do find that the Fama-French factors, SMB and HML, retain their ability to explain equity returns even after the model is conditioned on macroeconomic variables. Our findings suggest that investors do not adjust their risk premiums according to the changes in the macroeconomic variables we employ.

Date: 2007

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