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Validity of Fama-French Three-Factor Model In Asset Pricing: An Application In Istanbul Stock Exchange

Listed author(s):
  • Guzeldere, , Harun


    (Istanbul University)

  • Sarioglu, Serra Eren


    (Istanbul University)

Registered author(s):

    The 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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    Article 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)
    Pages: 1-1

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    Handle: RePEc:ris:buecrj:0081
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