Non-nested tests of a GDP-augmented Fama–French model versus a conditional Fama–French model in the Australian stock market

Robert Faff, Philip Gharghori and Annette Nguyen

International Review of Economics & Finance, 2014, vol. 29, issue C, 627-638

Abstract: We extend Vassalou (2003) by conditioning the Fama–French model with the same macroeconomic variables used to construct a GDP factor. The motivation for doing so is to ascertain whether the ability of the GDP-augmented model to explain equity returns is actually due to news about future GDP growth or whether it is due to the macroeconomic conditioning variables used to construct the GDP factor. We compare the performance of a GDP-enhanced Fama–French model with the conditional Fama–French model using non-nested testing techniques. We find that the GDP-augmented model considerably underperforms the conditional version of the model.

Keywords: GDP growth; Fama–French model; Asset pricing (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:627-638

DOI: 10.1016/j.iref.2013.07.007

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