On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong stock market

On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong... This paper investigates the performance of four-factor asset pricing model using Hong Kong stock returns. Our four-factor model is constructed by adding a momentum factor into the Fama and French’s (J Finance Econ 33(1):3–56, 1993) three-factor model. We find that the four-factor model may explain return variation using Hong Kong data. Our results show evidence that all the four factors are significant in the model and intercepts are not significant. In addition, the reasonably high values of adjusted R 2 and the insignificance of an additional explanatory variable of residual standard deviation provide supportive evidence to the model. The robustness of the model is also checked for two effects: up- and down-market conditions and seasonal behavior. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong stock market

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-009-0151-x
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the performance of four-factor asset pricing model using Hong Kong stock returns. Our four-factor model is constructed by adding a momentum factor into the Fama and French’s (J Finance Econ 33(1):3–56, 1993) three-factor model. We find that the four-factor model may explain return variation using Hong Kong data. Our results show evidence that all the four factors are significant in the model and intercepts are not significant. In addition, the reasonably high values of adjusted R 2 and the insignificance of an additional explanatory variable of residual standard deviation provide supportive evidence to the model. The robustness of the model is also checked for two effects: up- and down-market conditions and seasonal behavior.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 25, 2009

References

  • Investment performance of common stocks in relation to their price-earnings ratios: a test of the efficient market hypothesis
    Basu, S

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