Fama-French five-factor asset pricing model: empirical evidence from Indian stock market

Vanita Tripathi and Pardeep Singh

International Journal of Business and Globalisation, 2021, vol. 27, issue 1, 70-91

Abstract: The present study examines the applicability of five-factor model of Fama-French (2015). This model considers five factors namely market, size, value, profitability and investment in explaining the cross-sectional variations, i.e., variations across different stock or portfolios in the equity returns in Indian stock markets using the monthly closing price data of a sample of 486 companies which are a part of CNX 500 index over the period from July 2000 to June 2015. The paper investigates whether including any or all of the additional four factors can better explain the cross-sectional variations than the single factor capital assets pricing model. The investment strategies based on size, value and profitability provided abnormal returns over the study period. By making use of the Davis et al. (2000) methodology, we find that Fama-French five-factor model based on market premium, size premium, value premium, profitability premium and investment premium explains the variations in the equity returns better than single factor capital assets pricing model but it does not increase the adjusted R² significantly. The results have implications for asset pricing, market efficiency and investment strategies in the Indian stock market.

Keywords: Fama-French five-factor model; market model; five-factor model; four-factor model; three-factor model; asset pricing; size effect; value effect; profitability effect; investment effect; CAPM. (search for similar items in EconPapers)
Date: 2021
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