 The four-factor model and stock returns: evidence from Sri LankaAmal Peter Abeysekera and Pulukkuttige Don Nimal Afro-Asian Journal of Finance and Accounting, 2017, vol. 7, issue 1, 1-15 Abstract: There have been numerous studies that have attempted to explain the cross-sectional variation in average returns in developed and emerging markets. However, there is a dearth in the published evidence of research that has looked at frontier markets regarding this aspect. Sri Lanka is considered to be a frontier market and hence the objective of this study is to test the ability of the Carhart four-factor model to explain the variation in the cross-section of average stock returns in the Colombo Stock Exchange (CSE) and to evaluate it in comparison to the capital asset pricing model (CAPM) and the Fama and French three-factor model. The study finds that the four-factor model, incorporating the market factor, size factor, value factor and momentum factor, provides a satisfactory explanation of the variation in the cross-section of average stock returns in the CSE. Further, it is found that the four-factor model performs better than the CAPM and the three-factor model. Keywords: Carhart four-factor model; GRS F-test; Colombo Stock Exchange; CSE; frontier markets; momentum; Sri Lanka; stock returns; capital asset pricing model; CAPM; Fama-French three-factor model; modelling. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ids:afasfa:v:7:y:2017:i:1:p:1-15 Access Statistics for this article More articles in Afro-Asian Journal of Finance and Accounting from Inderscience Enterprises Ltd |
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