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


  • Guzeldere, , Harun

    () (Istanbul University)

  • Sarioglu, Serra Eren

    () (Istanbul University)


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.

Suggested Citation

  • Guzeldere, , Harun & Sarioglu, Serra Eren, 2012. "Validity of Fama-French Three-Factor Model In Asset Pricing: An Application In Istanbul Stock Exchange," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 3(2), pages 1-1, April.
  • Handle: RePEc:ris:buecrj:0081

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    Cited by:

    1. Atilgan, Yigit & Demirtas, K. Ozgur & Erdogan, Alper, 2016. "Share issuance and equity returns in Borsa Istanbul," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 320-333.

    More about this item


    Three-Factor Model; Fama and French; Asset Pricing; Panel Data Analysis; ISE;

    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading


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