IDEAS home Printed from https://ideas.repec.org/a/sae/globus/v20y2019i3p684-691.html

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0972150919837060
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0972150919837060?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Novy-Marx, Robert, 2013. "The other side of value: The gross profitability premium," Journal of Financial Economics, Elsevier, vol. 108(1), pages 1-28.
    2. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Anupam Dutta & David McMillan, 2015. "Improved calendar time approach for measuring long-run anomalies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1065948-106, December.
    5. John D. Lyon & Brad M. Barber & Chih‐Ling Tsai, 1999. "Improved Methods for Tests of Long‐Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, February.
    6. Michael J. Cooper & Huseyin Gulen & Michael J. Schill, 2008. "Asset Growth and the Cross‐Section of Stock Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1609-1651, August.
    7. Loughran, Tim & Ritter, Jay R., 2000. "Uniformly least powerful tests of market efficiency," Journal of Financial Economics, Elsevier, vol. 55(3), pages 361-389, March.
    8. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sher Khan & Fazale Wahid & Aftab Rahim & Arshad Ali & Ahtasham Ahmad, 2025. "Investigating the Momentum Effect in the Merging Market: Evidence from Pakistan," Global Business Review, International Management Institute, vol. 26(2), pages 364-379, April.
    2. Hassan Zada & Naveed Khan & Kai-Yin Woo & Sana Gaied Chortane, 2025. "Asset Pricing: A Comparative Analysis of Fama-French Five-Factor with Human Capital-Based Six-Factor Model," Advances in Decision Sciences, Asia University, Taiwan, vol. 29(4), pages 1-37.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bessembinder, Hendrik & Zhang, Feng, 2013. "Firm characteristics and long-run stock returns after corporate events," Journal of Financial Economics, Elsevier, vol. 109(1), pages 83-102.
    2. Sadok El Ghoul & Omrane Guedhami & Sattar A. Mansi & Oumar Sy, 2023. "Event studies in international finance research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(2), pages 344-364, March.
    3. Liang, Woan-lih, 2016. "Sensitivity to investor sentiment and stock performance of open market share repurchases," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 75-94.
    4. Zhong, Angel, 2018. "Idiosyncratic volatility in the Australian equity market," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 105-125.
    5. Zhou, Zhenkun & Wu, Danni & Su, Zhi & Ren, Tao, 2024. "Exploring the investment value of retail sales growth: Evidence from the China Retailer Alliance," Finance Research Letters, Elsevier, vol. 63(C).
    6. Cederburg, Scott & O’Doherty, Michael S. & Wang, Feifei & Yan, Xuemin (Sterling), 2020. "On the performance of volatility-managed portfolios," Journal of Financial Economics, Elsevier, vol. 138(1), pages 95-117.
    7. Sanae Ait Jillali & Mohammed Belkasseh, 2023. "IPOs performance evaluation: Which methodology to opt for?," Post-Print halshs-04322482, HAL.
    8. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, March.
    9. Eckbo, B. Espen & Norli, Oyvind, 2005. "Liquidity risk, leverage and long-run IPO returns," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 1-35, March.
    10. Eckbo, B. Espen & Masulis, Ronald W. & Norli, Oyvind, 2000. "Seasoned public offerings: resolution of the 'new issues puzzle'," Journal of Financial Economics, Elsevier, vol. 56(2), pages 251-291, May.
    11. Bartram, Söhnke M. & Grinblatt, Mark, 2018. "Agnostic fundamental analysis works," Journal of Financial Economics, Elsevier, vol. 128(1), pages 125-147.
    12. Clarke, Charles, 2022. "The level, slope, and curve factor model for stocks," Journal of Financial Economics, Elsevier, vol. 143(1), pages 159-187.
    13. Asheesh Pandey & Rajni Joshi, 2022. "Examining Asset Pricing Anomalies: Evidence from Europe," Business Perspectives and Research, , vol. 10(3), pages 362-378, September.
    14. Lu Zhang, 2017. "The Investment CAPM," European Financial Management, European Financial Management Association, vol. 23(4), pages 545-603, September.
    15. Jiaju Miao & Pawel Polak, 2023. "Online Ensemble Learning for Sector Rotation: A Gradient-Free Framework," Papers 2304.09947, arXiv.org, revised Nov 2025.
    16. Ray Ball & Gil Sadka & Ayung Tseng, 2022. "Correction to: using accounting earnings and aggregate economic indicators to estimate firm-level systematic risk," Review of Accounting Studies, Springer, vol. 27(2), pages 647-648, June.
    17. Hoechle, Daniel & Schmid, Markus & Zimmermann, Heinz, 2017. "Does Unobservable Heterogeneity Matter for Portfolio-Based Asset Pricing Tests?," Working Papers on Finance 1717, University of St. Gallen, School of Finance, revised Mar 2020.
    18. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    19. Juhani T. Linnainmaa & Michael R. Roberts, 2016. "The History of the Cross Section of Stock Returns," NBER Working Papers 22894, National Bureau of Economic Research, Inc.
    20. Xin Chen & Wei He & Libin Tao & Jianfeng Yu, 2023. "Attention and Underreaction-Related Anomalies," Management Science, INFORMS, vol. 69(1), pages 636-659, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:globus:v:20:y:2019:i:3:p:684-691. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.imi.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.