Robustness of Fama-French Three Factor Model: Further Evidence for Indian Stock Market

Sanjay Sehgal and A. Balakrishnan

Vision, 2013, vol. 17, issue 2, 119-127

Abstract: In this article, we re-examine the efficacy of one factor capital asset pricing model (CAPM) and Fama-French three factor asset pricing model (FF model) in explaining the returns on various portfolios constructed based upon company characteristics such as size and value. Data is employed from 1996 to 2010 for 465 companies which form part of BSE-500 index. We use the same methodological procedures of Fama-French (1993 and 1996) for constructing the portfolios. This article evaluates the robustness of FF model with its standard version (Market Capitalization–Price to Book ratio) as well as alternative versions. We find that FF model does a better job than CAPM by explaining the returns on most of the portfolios constructed based on company characteristics. We also find that the alternative versions of FF model are robust in explaining the returns on various characteristics sorted portfolios.

Keywords: CAPM; Fama-French Model; Market Capitalization Size Value Effects (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:vision:v:17:y:2013:i:2:p:119-127

DOI: 10.1177/0972262912483526

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