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Asset Pricing, the Fama—French Factor Model and the Implications of Quantile-Regression Analysis

In: Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures

Author

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  • David E. Allen
  • Singh Robert Powell

Abstract

This chapter empirically examines the behavior of the three risk factors from the Fama–French factor model of stock returns using quantile regressions and a US data set. It draws on the work of Koenker and Basset (1982) and Koenker (2005), who developed quantile regression which features inference concerning conditional quantile functions. The study shows that the factor models do not necessarily have consistent linear relationships across the quantiles.

Suggested Citation

  • David E. Allen & Singh Robert Powell, 2011. "Asset Pricing, the Fama—French Factor Model and the Implications of Quantile-Regression Analysis," Palgrave Macmillan Books, in: Greg N. Gregoriou & Razvan Pascalau (ed.), Financial Econometrics Modeling: Market Microstructure, Factor Models and Financial Risk Measures, chapter 7, pages 176-193, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-29810-1_7
    DOI: 10.1057/9780230298101_7
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    Cited by:

    1. Wang, Kai Y.K. & Chen, Cathy W.S. & So, Mike K.P., 2023. "Quantile three-factor model with heteroskedasticity, skewness, and leptokurtosis," Computational Statistics & Data Analysis, Elsevier, vol. 182(C).
    2. David E Allen & Abhay K Singh & Robert J Powell & Michael McAleer & James Taylor & Lyn Thomas, 2012. "The Volatility-Return Relationship:Insights from Linear and Non-Linear Quantile Regressions," KIER Working Papers 831, Kyoto University, Institute of Economic Research.

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