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FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE

Year 2018, Volume: 8 Issue: 1, 14 - 17, 30.12.2018

Nesrin Ozkan

https://doi.org/10.17261/Pressacademia.2018.972

Abstract

Purpose- The objective of this paper is to test the validity of Fama and French (2015) five factor model in Istanbul Stock Exchange (ISE) and to determine whether the value factor is redundant in the model.

Methodology – To that end, Fama-French five factor model is primarily tested, which is composed of market, firm size, value, profitability and investment factors. Afterwards, the value factor is excluded from the model and the empirical performance of two models are compared. Multiple regression analysis is carried out by using time series data from July 2009 to June 2015. Besides that, GRS-F test is applied to determine the pricing errors in models.

Findings- The results show that Fama-French five factor model can be used in ISE in explaining the variation of returns, although the factor returns are lower in comparison with Fama and French (2015) findings. Specifically, the size premium is considerably lower attained. On the other hand, GRS-F test proves there is no pricing error in the model.

Conclusion- Finally, the model is found viable in ISE between the period of July 2009 and June 2015. It is further found that the value factor is not redundant in the Fama-French five factor model.

Keywords

Fama-French five factor model asset pricing returns time series regression ISE

References

  • Acaravci, K.S. & Karaomer, Y .(2017). Fama-French five factor model: evidence from Turkey. International Journal of Economics and Financial Issues, Econjournals. 7(6): 130-137.
  • Aragon, G. O., Mehra, R., & Wahal, S. (2018). Do Properly Anticipated Prices Fluctuate Randomly? Evidence from VIX Futures Markets (No. w24575). National Bureau of Economic Research.
  • Cakıcı, N. (2015).The five-factor Fama-French Model: international evidence. Working Paper, Fordham University. DOI: http://dx.doi.org/10.2139/ssrn.2601662
  • Chiah, M., Chai, D., Zhong, A., & Li, S. (2016). A Better Model? An empirical investigation of the Fama–French five‐factor model in Australia. International Review of Finance, 16(4), 595-638.
  • Fama, E. F., & French K. R. (1993). Common risk factors in the returns on stocks and bonds, Journal of Financial Economics, 33 (1): 3-56. DOI: https://doi.org/10.1016/0304-405X(93)90023-5.
  • Fama, E. F., & French K. R. (1996). Multifactor explanations of asset pricing anomalies.The Journal of Finance, 51 (1): 55-84. DOI: https://doi.org/10.1111/j.1540-6261.1996.tb05202.x
  • Fama, E. F., & French K. R. (2013). A four-factor model for the size, value, and profitability patterns in stock returns. Fama-Miller Working Paper, University of Chicago.
  • Fama, E. F., & French K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116 (1): 1-22.
  • Fama, E. F., & French K. R. (2016). Dissecting anomalies with a five factor model. The Review of Financial Studies, 29 (1): 69–103.DOI: https://doi.org/10.1093/rfs/hhv043
  • Fama, E. F., & French K. R. (2017). International tests of a five-factor asset pricing model. Journal of Financial Economics, 123 (3): 441-463. DOI: https://doi.org/10.1016/j.jfineco.2016.11.004
  • Foye, J. (2018). A comprehensive test of the Fama-French five-factor model in emerging markets. Emerging Markets Review.
  • Gibbons, M.R., Ross, S.A., Shanken, J. (1989), A test of the efficiency of a given portfolio. Econometrica, 57: 1121-1152. DOI: 10.2307/1913625
  • Lin, Q., (2017). Noisy prices and the Fama–French five-factor asset pricing model in China. Emerg. Mark. Rev., 31: 141–163.
  • Nguyen, D. M. (2016). Fama-French Five-factor model: Evidence from Vietnam. https://www.nzfc.ac.nz/archives/2016/papers/updated/49.pdf (02.12.2018)
  • White H. (1990). A heteroscedasticity consistent covariance matrix estimator and a direct test of heteroscedasticity. Econometrica, 48: 817-838. DOI: 10.2307/1912934
  • Yang, Q., Li, L., Zhu, Q., & Mizrach, B. (2017). Analysis of US Sector of Services with a New Fama-French 5-Factor Model. Applied Mathematics, 8 (09), 1307.

Year 2018, Volume: 8 Issue: 1, 14 - 17, 30.12.2018

Nesrin Ozkan

https://doi.org/10.17261/Pressacademia.2018.972

Abstract

References

  • Acaravci, K.S. & Karaomer, Y .(2017). Fama-French five factor model: evidence from Turkey. International Journal of Economics and Financial Issues, Econjournals. 7(6): 130-137.
  • Aragon, G. O., Mehra, R., & Wahal, S. (2018). Do Properly Anticipated Prices Fluctuate Randomly? Evidence from VIX Futures Markets (No. w24575). National Bureau of Economic Research.
  • Cakıcı, N. (2015).The five-factor Fama-French Model: international evidence. Working Paper, Fordham University. DOI: http://dx.doi.org/10.2139/ssrn.2601662
  • Chiah, M., Chai, D., Zhong, A., & Li, S. (2016). A Better Model? An empirical investigation of the Fama–French five‐factor model in Australia. International Review of Finance, 16(4), 595-638.
  • Fama, E. F., & French K. R. (1993). Common risk factors in the returns on stocks and bonds, Journal of Financial Economics, 33 (1): 3-56. DOI: https://doi.org/10.1016/0304-405X(93)90023-5.
  • Fama, E. F., & French K. R. (1996). Multifactor explanations of asset pricing anomalies.The Journal of Finance, 51 (1): 55-84. DOI: https://doi.org/10.1111/j.1540-6261.1996.tb05202.x
  • Fama, E. F., & French K. R. (2013). A four-factor model for the size, value, and profitability patterns in stock returns. Fama-Miller Working Paper, University of Chicago.
  • Fama, E. F., & French K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116 (1): 1-22.
  • Fama, E. F., & French K. R. (2016). Dissecting anomalies with a five factor model. The Review of Financial Studies, 29 (1): 69–103.DOI: https://doi.org/10.1093/rfs/hhv043
  • Fama, E. F., & French K. R. (2017). International tests of a five-factor asset pricing model. Journal of Financial Economics, 123 (3): 441-463. DOI: https://doi.org/10.1016/j.jfineco.2016.11.004
  • Foye, J. (2018). A comprehensive test of the Fama-French five-factor model in emerging markets. Emerging Markets Review.
  • Gibbons, M.R., Ross, S.A., Shanken, J. (1989), A test of the efficiency of a given portfolio. Econometrica, 57: 1121-1152. DOI: 10.2307/1913625
  • Lin, Q., (2017). Noisy prices and the Fama–French five-factor asset pricing model in China. Emerg. Mark. Rev., 31: 141–163.
  • Nguyen, D. M. (2016). Fama-French Five-factor model: Evidence from Vietnam. https://www.nzfc.ac.nz/archives/2016/papers/updated/49.pdf (02.12.2018)
  • White H. (1990). A heteroscedasticity consistent covariance matrix estimator and a direct test of heteroscedasticity. Econometrica, 48: 817-838. DOI: 10.2307/1912934
  • Yang, Q., Li, L., Zhu, Q., & Mizrach, B. (2017). Analysis of US Sector of Services with a New Fama-French 5-Factor Model. Applied Mathematics, 8 (09), 1307.
There are 16 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Nesrin Ozkan 0000-0002-8674-5518

Publication Date December 30, 2018
Published in Issue Year 2018 Volume: 8 Issue: 1

Cite

APA Ozkan, N. (2018). FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE. PressAcademia Procedia, 8(1), 14-17. https://doi.org/10.17261/Pressacademia.2018.972
AMA Ozkan N. FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE. PAP. December 2018;8(1):14-17. doi:10.17261/Pressacademia.2018.972
Chicago Ozkan, Nesrin. “FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE”. PressAcademia Procedia 8, no. 1 (December 2018): 14-17. https://doi.org/10.17261/Pressacademia.2018.972.
EndNote Ozkan N (December 1, 2018) FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE. PressAcademia Procedia 8 1 14–17.
IEEE N. Ozkan, “FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE”, PAP, vol. 8, no. 1, pp. 14–17, 2018, doi: 10.17261/Pressacademia.2018.972.
ISNAD Ozkan, Nesrin. “FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE”. PressAcademia Procedia 8/1 (December 2018), 14-17. https://doi.org/10.17261/Pressacademia.2018.972.
JAMA Ozkan N. FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE. PAP. 2018;8:14–17.
MLA Ozkan, Nesrin. “FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE”. PressAcademia Procedia, vol. 8, no. 1, 2018, pp. 14-17, doi:10.17261/Pressacademia.2018.972.
Vancouver Ozkan N. FAMA-FRENCH FIVE FACTOR MODEL AND THE NECESSITY 0F VALUE FACTOR: EVIDENCE FROM ISTANBUL STOCK EXCHANGE. PAP. 2018;8(1):14-7.

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