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An Analysis and Comparison of Multi-Factor Asset Pricing Model Performance during Pandemic Situations in Developed and Emerging Markets

Author

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  • Konstantin B. Kostin

    (Department of Economics and Finance, Saint-Petersburg State University of Economics, 191023 St. Petersburg, Russia)

  • Philippe Runge

    (Graduate School, Nordakademie, 22767 Hamburg, Germany)

  • Michel Charifzadeh

    (ESB Business School, Reutlingen University, 72762 Reutlingen, Germany)

Abstract

This study empirically analyzes and compares return data from developed and emerging market data based on the Fama French five-factor model and compares it to previous results from the Fama French three-factor model by Kostin, Runge and Adams (2021). It researches whether the addition of the profitability and investment pattern factors show superior results in the assessment of emerging markets during the COVID-19 pandemic compared to developed markets. We use panel data covering eight indices of developed and emerging countries as well as a selection of eight companies from these markets, covering a period from 2000 to 2020. Our findings suggest that emerging markets do not generally outperform developed markets. The results underscore the need to reconsider the assumption that adding more factors to regression models automatically yields results that are more reliable. Our study contributes to the extant literature by broadening this research area. It is the first study to compare the performance of the Fama French three-factor model and the Fama French five-factor model in the cost of equity calculation for developed and emerging countries during the COVID-19 pandemic and other crisis events of the past two decades.

Suggested Citation

  • Konstantin B. Kostin & Philippe Runge & Michel Charifzadeh, 2022. "An Analysis and Comparison of Multi-Factor Asset Pricing Model Performance during Pandemic Situations in Developed and Emerging Markets," Mathematics, MDPI, vol. 10(1), pages 1-16, January.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:1:p:142-:d:717327
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    References listed on IDEAS

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    1. Blitz, David & Vidojevic, Milan, 2017. "The profitability of low-volatility," Journal of Empirical Finance, Elsevier, vol. 43(C), pages 33-42.
    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    3. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
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    Cited by:

    1. Eleftherios Thalassinos & Naveed Khan & Shakeel Ahmed & Hassan Zada & Anjum Ihsan, 2023. "A Comparison of Competing Asset Pricing Models: Empirical Evidence from Pakistan," Risks, MDPI, vol. 11(4), pages 1-24, March.
    2. Konstantin B. Kostin & Philippe Runge & Leyla E. Mamedova, 2022. "Validity of the Fama-French Three- and Five-Factor Models in Crisis Settings at the Example of Select Energy-Sector Companies during the COVID-19 Pandemic," Mathematics, MDPI, vol. 11(1), pages 1-13, December.

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