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Does the Five-Factor Asset Pricing Model Have Sufficient Power?

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  • Anupam Dutta

Abstract

The central purpose of this article is to assess whether the newly developed five-factor model of Fama and French (2015) has sufficient power to identify the long-term abnormal performance of firms experiencing major corporate events. In order to check the robustness of the five-factor model, power of the Fama–French three-factor model (1993) has also been investigated. Simulations show that although the five-factor specification is more powerful than the three-factor specification, the extended model still lacks power. The findings further suggest that if the book-to-market factor is excluded from the five-factor model, the four-factor model documents almost similar power like the five-factor model. In addition, the power is found to be substantially reduced as the event period advances.

Suggested Citation

  • Anupam Dutta, 2019. "Does the Five-Factor Asset Pricing Model Have Sufficient Power?," Global Business Review, International Management Institute, vol. 20(3), pages 684-691, June.
    • Handle: RePEc:sae:globus:v:20:y:2019:i:3:p:684-691
    DOI: 10.1177/0972150919837060
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