Explaining the Cross-section of Stock Returns in France: Characteristics or Risk Factors?

Souad Lajili-Jarjir

The European Journal of Finance, 2007, vol. 13, issue 2, 145-158

Abstract: In this study, the three-factor model of Fama and French and the 'characteristic model' of Daniel and Titman are tested using the French Stock Market. Stocks are ranked by size and book to market ratio and then by ex-ante β, HML or SMB loadings. Based on average returns, results reject the factor model with 'characteristic balanced' portfolios. In contrast, in time-series regressions, results are consistent with the factor pricing model and inconsistent with the characteristic-based pricing model. Because the value premium is small, conclusions must be interpreted carefully. However, size and market premiums allow more powerful tests of the two models.

Keywords: Asset pricing; anomalies; risk factors; Fama and French model (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1080/13518470600813557

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