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Pricing Ability of Four Factor Model using Quantile Regression: Evidences from India

Author

Listed:
  • Prashant Sharma

    (Jaipuria Institute of Management, Jaipur, Rajasthan, India,)

  • Prashant Gupta

    (International Management Institute, New Delhi, India)

  • Anurag Singh

    (Jaipuria Institute of Management, Jaipur, Rajasthan, India.)

Abstract

With the assumption that the returns are normally distributed with no fat tails, most of the existing studies have used ordinary least square (OLS) method to test the pricing ability of asset pricing models. These assumptions are not valid in numerous cases. Thus, to overcome such problem, the present study tests the pricing ability of Carhart (1997) four factor model using quantile regression which provides superior fitting of pricing factors than the traditional OLS model. The study uses daily data of Indian firms for period from December 1993 to March 2016. The results of the study reveal that the quantile regression model is having superior fitting across all percentile levels than OLS as it fails to fit these four factors across all percentile levels.

Suggested Citation

  • Prashant Sharma & Prashant Gupta & Anurag Singh, 2016. "Pricing Ability of Four Factor Model using Quantile Regression: Evidences from India," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1815-1826.
    • Handle: RePEc:eco:journ1:2016-04-71
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    References listed on IDEAS

    as
    1. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Varma, Jayanth R., 2013. "Four Factor Model in Indian Equities Market," IIMA Working Papers WP2013-09-05, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    3. Debarati Basu & Deepak Chawla, 2010. "An Empirical Test of CAPM—The Case of Indian Stock Market," Global Business Review, International Management Institute, vol. 11(2), pages 209-220, June.
    4. Chan, Louis K. C. & Lakonishok, Josef, 1992. "Robust Measurement of Beta Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(2), pages 265-282, June.
    5. Michelle L. Barnes & Anthony W. Hughes, 2002. "A quantile regression analysis of the cross section of stock market returns," Working Papers 02-2, Federal Reserve Bank of Boston.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Asset Pricing; Fama-French Factor Model; Quantile Regression; Cahart's Momentum;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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