IDEAS home Printed from https://ideas.repec.org/a/wly/complx/v2022y2022i1n6768434.html

Fama–French Three‐Factor Versus Daniel‐Titman Characteristics Model: A Comparative Study of Asset Pricing Models from India

Author

Listed:
  • Samreen Akhtar
  • Valeed Ahmad Ansari
  • Saghir Ahmad Ansari
  • Alam Ahmad

Abstract

This study compares the three‐factor model (F&F model) proposed by Eugene Fama and Kenneth French with Daniel and Titman’s Characteristics Model (D&T model) using the data of Indian stock returns for the period of 25 years from 1993 to 2018. Three‐way sorting (3 × 2 × 2) of stocks based on the B/M ratio and size of the firms, and then by SMB, HML, or ex‐ante β loadings, is formulated to design thirty‐six portfolios. Regression and rolling regression are applied to the data under study. Results obtained by the F&F model, despite its shortcomings, are found more conclusive than the D&T model for distinguishing between characteristics and covariances for returns on Indian stock. This study favors the F&F model over the D&T model.

Suggested Citation

  • Samreen Akhtar & Valeed Ahmad Ansari & Saghir Ahmad Ansari & Alam Ahmad, 2022. "Fama–French Three‐Factor Versus Daniel‐Titman Characteristics Model: A Comparative Study of Asset Pricing Models from India," Complexity, John Wiley & Sons, vol. 2022(1).
    • Handle: RePEc:wly:complx:v:2022:y:2022:i:1:n:6768434
    DOI: 10.1155/2022/6768434
    as

    Download full text from publisher

    File URL: https://doi.org/10.1155/2022/6768434
    Download Restriction: no
    File URL: https://libkey.io/10.1155/2022/6768434?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. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Wayne E. Ferson & Campbell R. Harvey, 1999. "Conditioning Variables and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 54(4), pages 1325-1360, August.
    3. Irwan Adi Ekaputra & Bambang Sutrisno, 2020. "Empirical tests of the Fama-French five-factor model in Indonesia and Singapore," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 10(1), pages 85-111.
    4. Souad Lajili Jarjir, 2007. "Explaining the cross-section of stock returns in France: Characteristics or risk factors?," Post-Print hal-01133582, HAL.
    5. James L. Davis & Eugene F. Fama & Kenneth R. French, 2000. "Characteristics, Covariances, and Average Returns: 1929 to 1997," Journal of Finance, American Finance Association, vol. 55(1), pages 389-406, February.
    6. de Groot, Caspar G. M. & Verschoor, Willem F. C., 2002. "Further evidence on Asian stock return behavior," Emerging Markets Review, Elsevier, vol. 3(2), pages 179-193, June.
    7. Monia Ben Ltaifa, 2018. "Do book to market and size explain stock returns of banks? An empirical investigation from MENA economies," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 10(3), pages 223-249.
    8. Asheesh Pandey & Sanjay Sehgal, 2016. "Explaining Size Effect for Indian Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(1), pages 45-68, March.
    9. Chan, Howard W. & Faff, Robert W., 2003. "An investigation into the role of liquidity in asset pricing: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 11(5), pages 555-572, November.
    10. Lau, Sie Ting & Lee, Chee Tong & McInish, Thomas H., 2002. "Stock returns and beta, firms size, E/P, CF/P, book-to-market, and sales growth: evidence from Singapore and Malaysia," Journal of Multinational Financial Management, Elsevier, vol. 12(3), pages 207-222, July.
    11. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    12. Christian Fieberg & Armin Varmaz & Thorsten Poddig, 2016. "Covariances vs. characteristics: what does explain the cross section of the German stock market returns?," Business Research, Springer;German Academic Association for Business Research, vol. 9(1), pages 27-50, April.
    13. Souad Lajili-Jarjir, 2007. "Explaining the Cross-section of Stock Returns in France: Characteristics or Risk Factors?," The European Journal of Finance, Taylor & Francis Journals, vol. 13(2), pages 145-158.
    14. Daniel, Kent & Titman, Sheridan, 1997. "Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," Journal of Finance, American Finance Association, vol. 52(1), pages 1-33, March.
    15. Sanjay Sehgal & Vanita Tripathi, 2005. "Size Effect in Indian Stock Market: Some Empirical Evidence," Vision, , vol. 9(4), pages 27-42, October.
    16. 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.
    17. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    18. Philip Gharghori & Howard Chan & Robert Faff, 2006. "Factors or Characteristics? That is the Question," Pacific Accounting Review, Emerald Group Publishing Limited, vol. 18(1), pages 21-46, March.
    19. Yiu-Wah Ho & Roger Strange & Jenifer Piesse, 2000. "CAPM anomalies and the pricing of equity: evidence from the Hong Kong market," Applied Economics, Taylor & Francis Journals, vol. 32(12), pages 1629-1636.
    20. repec:dau:papers:123456789/4169 is not listed on IDEAS
    21. Markus Glaser & Martin Weber, 2003. "Momentum and Turnover: Evidence from the German Stock Market," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 55(2), pages 108-135, April.
    22. Kent Daniel & Sheridan Titman & K.C. John Wei, 2001. "Explaining the Cross‐Section of Stock Returns in Japan: Factors or Characteristics?," Journal of Finance, American Finance Association, vol. 56(2), pages 743-766, April.
    23. Fran篩s-Éric Racicot, 2015. "Engineering robust instruments for GMM estimation of panel data regression models with errors in variables: a note," Applied Economics, Taylor & Francis Journals, vol. 47(10), pages 981-989, February.
    24. Andreas Schrimpf & Michael Schröder & Richard Stehle, 2007. "Cross‐sectional Tests of Conditional Asset Pricing Models: Evidence from the German Stock Market," European Financial Management, European Financial Management Association, vol. 13(5), pages 880-907, November.
    25. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    26. K. Geert Rouwenhorst, 1999. "Local Return Factors and Turnover in Emerging Stock Markets," Journal of Finance, American Finance Association, vol. 54(4), pages 1439-1464, August.
    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. Wing-Keung Wong & Riffat Mughal & Mustafa Afeef & Naveed Khan & Hassan Zada, 2026. "Human Capital Based Six-Factor Asset Pricing Model in the Era of Covid-19," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 33(1), pages 25-63, March.

    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. Christian Fieberg & Armin Varmaz & Thorsten Poddig, 2016. "Covariances vs. characteristics: what does explain the cross section of the German stock market returns?," Business Research, Springer;German Academic Association for Business Research, vol. 9(1), pages 27-50, April.
    2. Shum, Wai Cheong & Tang, Gordon Y.N., 2005. "Common risk factors in returns in Asian emerging stock markets," International Business Review, Elsevier, vol. 14(6), pages 695-717, December.
    3. Christian Walkshäusl & Sebastian Lobe, 2014. "The Alternative Three†Factor Model: An Alternative beyond US Markets?," European Financial Management, European Financial Management Association, vol. 20(1), pages 33-70, January.
    4. Wallmeier, Martin & Tauscher, Kathrin, 2012. "A Note on the Impact of Portfolio Overlapping in Tests of the Fama and French Three-Factor Model," FSES Working Papers 433, Faculty of Economics and Social Sciences, University of Freiburg/Fribourg Switzerland.
    5. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    6. Fahad Ali & RongRong He & YueXiang Jiang, 2018. "Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market," Economies, MDPI, vol. 6(1), pages 1-24, February.
    7. D. L. Wilcox & T. J. Gebbie, 2013. "On pricing kernels, information and risk," Papers 1310.4067, arXiv.org, revised Oct 2013.
    8. Wang, Yuenan & Di Iorio, Amalia, 2007. "The cross section of expected stock returns in the Chinese A-share market," Global Finance Journal, Elsevier, vol. 17(3), pages 335-349, March.
    9. Kathrin Tauscher & Martin Wallmeier, 2016. "Portfolio Overlapping Bias in Tests of the Fama–French Three†Factor Model," European Financial Management, European Financial Management Association, vol. 22(3), pages 367-393, June.
    10. Amir Amel†Zadeh, 2011. "The Return of the Size Anomaly: Evidence from the German Stock Market," European Financial Management, European Financial Management Association, vol. 17(1), pages 145-182, January.
    11. repec:dau:papers:123456789/2514 is not listed on IDEAS
    12. Lischewski, Judith & Voronkova, Svitlana, 2012. "Size, value and liquidity. Do They Really Matter on an Emerging Stock Market?," Emerging Markets Review, Elsevier, vol. 13(1), pages 8-25.
    13. Fernando Rubio, 2005. "Eficiencia De Mercado, Administracion De Carteras De Fondos Y Behavioural Finance," Finance 0503028, University Library of Munich, Germany, revised 23 Jul 2005.
    14. Joachim Freyberger & Andreas Neuhierl & Michael Weber, 2020. "Dissecting Characteristics Nonparametrically," The Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 2326-2377.
    15. Hodrick, Robert J. & Zhang, Xiaoyan, 2001. "Evaluating the specification errors of asset pricing models," Journal of Financial Economics, Elsevier, vol. 62(2), pages 327-376, November.
    16. Chandra Shekhar Bhatnagar & Riad Ramlogan, 2012. "The capital asset pricing model versus the three factor model: A United Kingdom Perspective," International Journal of Business and Social Research, LAR Center Press, vol. 2(1), pages 51-65, February.
    17. Zaremba Adam & Konieczka Przemysław, 2017. "Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 53(3), pages 26-47, September.
    18. Montone, Maurizio, 2023. "Beta, value, and growth: Do dichotomous risk-preferences explain stock returns?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    19. M. Eskandar Shah & Sourafel Girm & R. Hudson, 2012. "Rationalizing the Value Premium under Economic Fundamentals in an Emerging Market," Working Papers 12010, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    20. Zura Kakushadze, 2015. "Heterotic Risk Models," Papers 1508.04883, arXiv.org, revised Jan 2016.
    21. Zura Kakushadze & Willie Yu, 2016. "Statistical Risk Models," Papers 1602.08070, arXiv.org, revised Jan 2017.

    More about this item

    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:wly:complx:v:2022:y:2022:i:1:n:6768434. 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: Wiley Content Delivery (email available below). General contact details of provider: https://onlinelibrary.wiley.com/journal/8503 .

    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.