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Explaining mispricing with Fama-French factors: new evidence from the multiscaling approach

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  • Francis In
  • Sangbae Kim
  • Robert Faff

Abstract

This article examines the Capital Asset Pricing Model (CAPM) over different frequencies utilizing a recently developed multiscaling method: wavelet analysis. Our empirical analysis shows that the risk factors are more relevant at the lower frequencies than at the higher frequencies in the traditional CAPM. In addition, the overreaction-related mispricing hypothesis explains the size effect but not the value premium. After incorporating the two risk factors (Small Minus Big (SMB) and High Minus Low (HML)), our empirical findings support the positive relationship between market risk and mean returns for big stocks, but not small stocks.

Suggested Citation

  • Francis In & Sangbae Kim & Robert Faff, 2010. "Explaining mispricing with Fama-French factors: new evidence from the multiscaling approach," Applied Financial Economics, Taylor & Francis Journals, vol. 20(4), pages 323-330.
    • Handle: RePEc:taf:apfiec:v:20:y:2010:i:4:p:323-330
    DOI: 10.1080/09603100903299667
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    References listed on IDEAS

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    1. Michis, Antonis A., 2014. "Investing in gold: Individual asset risk in the long run," Finance Research Letters, Elsevier, vol. 11(4), pages 369-374.

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