Revisiting Fama French Three-Factor Model in Indian Stock Market

Yash Pal Taneja

Vision, 2010, vol. 14, issue 4, 267-274

Abstract: Stock market anomalies have always attracted questions over the applicability of Capital Asset Pricing Model (CAPM) for being an efficient predictor of stock market returns. Roll (1977), Banz (1981), Bhandari (1988), Jagadeesh (1992), Lakonishok, Shleifer, and Vishney (1994), Arumugam (1996) showed market anomalies for CAPM. Fama French (1992, 1996, and 2004) demonstrated the inability of CAPMs beta to explain the cross-sectional stock market returns by introducing two other factors i.e. size and value. In this study, the Capital Asset Pricing Model and Fama French Model have been examined by taking a sample of 187 companies for a study period of five years, ranging from June 2004 to June 2009. In order to validate the results, the sample selection was made on the basis of continuous presence in S&P CNX 500 index for at least ten years without fail. The study showed that efficiency of Fama French Model, for being a good predictor, can not be ignored in India but either of the two factors (size and value) might improve the model. It is so because a high degree of correlation is found between the size and value factor returns.

Keywords: CAPM; Fama French Model; Asset Returns (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:vision:v:14:y:2010:i:4:p:267-274

DOI: 10.1177/097226291001400403

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