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On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange

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  • Mohammad Q.M. Momani

Abstract

This study aims to explore the robustness of the applicability of the Fama-French and the Carhart asset pricing models on the Amman Stock Exchange (ASE) equity market. It uses data on all companies listed and traded in the ASE, over the period of 2002 to 2018. The study uses the time-series regression approach of Black et al. (1972). To estimate the models, the study applies the ordinary least squares (OLS) method. The study found that the models fail to capture the cross-section of average returns to portfolios sorted on size/book-to-market as well as size/momentum. The ability of the Carhart model in describing the returns to size/book-to-market portfolios is similar to that of the Fama-French model; however, the model better describes the returns to size/momentum portfolios. Unlike Al-Mwalla's (2012) conclusion, this study suggests using the Carhart model in practical applications that require the estimation of the ASE equity market returns.

Suggested Citation

  • Mohammad Q.M. Momani, 2021. "On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 11(1), pages 64-80.
    • Handle: RePEc:ids:afasfa:v:11:y:2021:i:1:p:64-80
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