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An Application of Factor Pricing Models to the Polish Stock Market

Author

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  • Adam Zaremba
  • Anna Czapkiewicz
  • Jan Jakub Szczygielski
  • Vitaly Kaganov

Abstract

We evaluate and compare the performance of four popular factor pricing models: the capital asset pricing model, the Fama and French three-factor model, Carhart’s four-factor model, and the five-factor model of Fama and French. We aim to establish which of these models is most applicable in the Polish stock market. To do so, we employ a battery of tests—cross-sectional regressions, examination of one-way and two-way sorted portfolios, tests of monotonic relationships, and factor redundancy tests—and apply them to a sample of more than 1100 stocks for the years 2000–2018. The results indicate that the four-factor model outperforms the other models; it has the greatest explanatory ability for cross-sectional returns and is therefore well-suited for asset pricing in Poland.

Suggested Citation

  • Adam Zaremba & Anna Czapkiewicz & Jan Jakub Szczygielski & Vitaly Kaganov, 2019. "An Application of Factor Pricing Models to the Polish Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(9), pages 2039-2056, July.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:9:p:2039-2056
    DOI: 10.1080/1540496X.2018.1517042
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    Cited by:

    1. Katarzyna Perez & £ukasz Szymczyk, 2022. "Actual rate of the management fee in mutual funds of different styles," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(4), pages 969-1014, December.
    2. Filip Dariusz, 2019. "Manager’s gender and professional credentials in the performance of Polish investment funds," Journal of Economics and Management, Sciendo, vol. 38(4), pages 46-66, December.
    3. Artur A. Trzebiński, 2022. "Assessing the performance of mutual funds with multifactor asset pricing models," Bank i Kredyt, Narodowy Bank Polski, vol. 53(1), pages 79-106.
    4. Asmâa ALAOUI TAIB & Safae BENFEDDOUL, 2023. "Explaining the time series of stock returns," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 14(2), pages 2-16, December.

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