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A simple test of the Fama and French model using daily data: Australian evidence

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  • Robert Faff

Abstract

The current study contributes to the empirical literature aimed at testing the Fama and French three-factor model, using daily Australian data. In general, the evidence found is quite favourable to the model based on formal asset pricing tests. However, when the estimated risk premia are taken into account, the support for the Fama-French model is less persuasive. In particular, a negative size premium is uncovered consistent with a wave of recent findings questioning its continued existence over recent years.

Suggested Citation

  • Robert Faff, 2004. "A simple test of the Fama and French model using daily data: Australian evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 14(2), pages 83-92.
  • Handle: RePEc:taf:apfiec:v:14:y:2004:i:2:p:83-92
    DOI: 10.1080/0960310042000176353
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    References listed on IDEAS

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    Cited by:

    1. Jose Fernandes & Augusto Hasman & Juan Ignacio Pena, 2007. "Risk premium: insights over the threshold," Applied Financial Economics, Taylor & Francis Journals, vol. 18(1), pages 41-59.
    2. Claudio Morana & Andrea Beltratti, 2006. "Structural breaks and common factors in the volatility of the Fama-French factor portfolios," Applied Financial Economics, Taylor & Francis Journals, vol. 16(14), pages 1059-1073.
    3. Gomez Biscarri, Javier & Lopez Espinosa, German, 2008. "The influence of differences in accounting standards on empirical pricing models: An application to the Fama-French model," Journal of Multinational Financial Management, Elsevier, vol. 18(4), pages 369-388, October.
    4. Gharghori, Philip & Hamzah, Yusuf & Veeraraghavan, Madhu, 2010. "Migration and its contribution to the size and value premiums: Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(2), pages 177-196, April.
    5. Robert J. Bianchi & Michael E. Drew & Timothy Whittaker, 2016. "The Predictive Performance of Asset Pricing Models: Evidence from the Australian Securities Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(04), pages 1-18, December.
    6. F. Javier De Peña & Carlos Forner-Rodríguez & Germán López-Espinosa, 2008. "Fundamentals and the origin of Fama-French factors," Faculty Working Papers 04/08, School of Economics and Business Administration, University of Navarra.
    7. repec:ebl:ecbull:v:7:y:2007:i:7:p:1-10 is not listed on IDEAS
    8. Raza, Muhammad Wajid & Mohsin, Hassan Mohammad, 2014. "Portfolio Tilting Hunt for Positive Alpha Through Style Tilts," MPRA Paper 70622, University Library of Munich, Germany, revised 01 Sep 2014.
    9. Benoît D'Udekem, 2014. "Bank Cash Holdings and Investor Uncertainty," Working Papers CEB 14-002, ULB -- Universite Libre de Bruxelles.
    10. Nakai, Miwa & Yamaguchi, Keiko & Takeuchi, Kenji, 2016. "Can SRI funds better resist global financial crisis? Evidence from Japan," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 12-20.
    11. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    12. Emilios C. Galariotis, 2010. "What should investors know about the stability of momentum investing and its riskiness? The case of the Australian Security Exchange," Post-Print hal-00917587, HAL.
    13. Galariotis, Emilios C., 2010. "What should we know about momentum investing? The case of the Australian Security Exchange," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 369-389, September.
    14. Ramiah, Vikash & Cheng, Ka Yeung & Orriols, Julien & Naughton, Tony & Hallahan, Terrence, 2011. "Contrarian investment strategies work better for dually-traded stocks: Evidence from Hong Kong," Pacific-Basin Finance Journal, Elsevier, vol. 19(1), pages 140-156, January.
    15. Paola Brighi & Stefano d'Addona & Antonio Carlo Francesco Della Bina, 2010. "Too Small or too Low? New Evidence on the 4-Factor Model," Working Paper series 31_10, Rimini Centre for Economic Analysis.
    16. Quentin Wodon, 2007. "Constructing Fama-French Factors from style indexes: Japanese evidence," Economics Bulletin, AccessEcon, vol. 7(7), pages 1-10.
    17. Lien Duong & Izan H. Y. Izan, 2012. "Consequences of Riding Takeover Waves: A ustralian Evidence," International Review of Finance, International Review of Finance Ltd., vol. 12(4), pages 399-434, December.
    18. Wu, Po-Chin & Liu, Shiao-Yen & Chen, Che-Ying, 2016. "Re-examining risk premiums in the Fama–French model: The role of investor sentiment," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 154-171.
    19. repec:pal:assmgt:v:17:y:2016:i:3:d:10.1057_jam.2016.1 is not listed on IDEAS
    20. Anshul Verma & Riccardo Junior Buonocore & Tiziana di Matteo, 2017. "A cluster driven log-volatility factor model: a deepening on the source of the volatility clustering," Papers 1712.02138, arXiv.org.

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