Validity of Fama-French Three-Factor Model In Asset Pricing: An Application In Istanbul Stock Exchange
AbstractThe traditional Capital Asset Pricing Model stating that the risk premium of a financial asset is positively related to its market risk, was found to be insufficient in explaining the expected returns of stocks. Fama and French (1993) introduced the “Three-Factor Asset Pricing Model” via inserting the size and book-to-market factors to the standard Capital Asset Pricing Model. In this study, the validity of the Three-Factor Model in Istanbul Stock Exchange within 1999-2011 period is investigated. The model is tested on ISE-100 Index non-financial companies monthly data by utilizing panel data analysis. The findings reveal that Three-Factor Model gives statistically significant results in Istanbul Stock Exchange. In the forecast of the cost of capital, Three-Factor Model can be used instead of one-factor Capital Asset Pricing Model by the investors in Turkey. Our findings are consistent with most of the studies that suggested the validity of the Three-Factor Model in developed and emerging markets.
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Bibliographic InfoArticle provided by Uludag University, Faculty of Economics and Administrative Sciences in its journal Business and Economics Research Journal.
Volume (Year): 3 (2012)
Issue (Month): 2 (April)
Three-Factor Model; Fama and French; Asset Pricing; Panel Data Analysis; ISE;
Find related papers by JEL classification:
- C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
- D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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