A Study to Check the Applicability of Fama and French, Three-Factor Model on KSE 100-Index from 2004-2014

Nahzat Abbas, Jahanzeb Khan, Rabia Aziz and Zain Sumrani

International Journal of Financial Research, 2015, vol. 6, issue 1, 90-100

Abstract: This study aims to test the explanatory power of Fama and French three factor model (1993) in explaining cross-sectional average return for Pakistan¡¯s equity market for the time frame of 10 years from 2004-2014. The sample includes firms that traded on KSE-100 index from 2004-2014. Six portfolios were formed by the intersection of two size portfolios and three value portfolios. Excess monthly returns of the six portfolios i.e. the dependent variable were individually regressed against market premium, size premium and value premium (MRP, SMB and HML) i.e. the independent variables to test the validity of Fama and French three factor model. Along the line of original Fama & French, this study aims to provide valuable insights into components of excess returns and lay ground work towards further studies in this domain. An important insight it is bound to show is whether BE/ME & size factors hold as proxies for time-varying systematic risk as is proclaimed by past researches.

Keywords: value investing; value premium; size premium; portfolio management; investment strategies; asset pricing model (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:jfr:ijfr11:v:6:y:2015:i:1:p:90-100

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