Fama–French Three‐Factor Versus Daniel‐Titman Characteristics Model: A Comparative Study of Asset Pricing Models from India

Samreen Akhtar, Valeed Ahmad Ansari, Saghir Ahmad Ansari and Alam Ahmad

Complexity, 2022, vol. 2022, issue 1

Abstract: This study compares the three‐factor model (F&F model) proposed by Eugene Fama and Kenneth French with Daniel and Titman’s Characteristics Model (D&T model) using the data of Indian stock returns for the period of 25 years from 1993 to 2018. Three‐way sorting (3 × 2 × 2) of stocks based on the B/M ratio and size of the firms, and then by SMB, HML, or ex‐ante β loadings, is formulated to design thirty‐six portfolios. Regression and rolling regression are applied to the data under study. Results obtained by the F&F model, despite its shortcomings, are found more conclusive than the D&T model for distinguishing between characteristics and covariances for returns on Indian stock. This study favors the F&F model over the D&T model.

Date: 2022
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