An Application of Factor Pricing Models to the Polish Stock Market

Adam Zaremba (), Anna Czapkiewicz, Jan Jakub Szczygielski and Vitaly Kaganov

Emerging Markets Finance and Trade, 2019, vol. 55, issue 9, 2039-2056

Abstract: We evaluate and compare the performance of four popular factor pricing models: the capital asset pricing model, the Fama and French three-factor model, Carhart’s four-factor model, and the five-factor model of Fama and French. We aim to establish which of these models is most applicable in the Polish stock market. To do so, we employ a battery of tests—cross-sectional regressions, examination of one-way and two-way sorted portfolios, tests of monotonic relationships, and factor redundancy tests—and apply them to a sample of more than 1100 stocks for the years 2000–2018. The results indicate that the four-factor model outperforms the other models; it has the greatest explanatory ability for cross-sectional returns and is therefore well-suited for asset pricing in Poland.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:55:y:2019:i:9:p:2039-2056

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DOI: 10.1080/1540496X.2018.1517042

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