FAMA AND FRENCH THREE FACTOR MODEL APPLICATION IN THE PAKISTAN STOCK EXCHANGE (PSE)

Athar Iqbal (), Akhtiar Ali () and Peter Xavier D’Abreo ()
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Athar Iqbal: Assistant Professor, Iqra University

IBT Journal of Business Studies (JBS), 2017, vol. 13, issue 1, 1-11

Abstract: Purpose This research has been carried out to test empirically the application of Fama and French three factor model on Pakistan Stock Exchange covering forty listed companies using annual data from 1984 to 2012.Methodology Author selected excess return as dependent variable and three independent variables market risk, size of the firm and the book to market value of the firms in the portfolio.To test the hypotheses, author used panel least square method.Findings Result shows that all independent variables are significant and have sign as predicted by theoretical understanding.From our result we interpret that three factors model explain returns in its simplified form on long term horizon better than single factor model like CAPM.Implication The findings of the research paper suggest that developing economy like Pakistan investor and portfolio manager can better understand by applying multiple variable models and its modified form rather than only relying on CAMP covariance sensitivity model.

Keywords: Modern portfolio theory; excess return; risk and return; three factors (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:aib:ibtjbs:v:13:y:2017:i:1:p:1-11

DOI: 10.46745/ilma.ibtjbs.2017.131.1

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