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Long-Run Evidence Using Multifactor Asset Pricing Models

Author

Listed:
  • Stefano D'Addona

    (University of Roma Tre)

  • Paola Brighi

    (University of Modena e Reggio Emilia)

  • Antonio Carlo Francesca Della Bina

    (University of Bologna)

Abstract

We study the pricing factor structure of Italian equity returns. Using 25 years of data, we focus on a classical four factors model. A two step empirical analysis is provided where first we estimate an unrestricted multi-factor model to test if there is any evidence of misspecification. Then, we estimate the restricted model through the Generalized Methods of Moments (GMM). We find that the market premium and the size premium for stocks are confirmed for a domestic Italian investor. On the contrary, weak evidence is found for the value premium. Finally, we highlight, that augmenting the model with a momentum factor may at least partially improve its performance.

Suggested Citation

  • Stefano D'Addona & Paola Brighi & Antonio Carlo Francesca Della Bina, 2011. "Long-Run Evidence Using Multifactor Asset Pricing Models," Working Papers 0911, CREI Universit√† degli Studi Roma Tre, revised 2011.
  • Handle: RePEc:rcr:wpaper:09_11
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    File URL: http://host.uniroma3.it/centri/crei/pubblicazioni/workingpapers2011/CREI_09_2011.pdf
    File Function: First version, 2011
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    More about this item

    Keywords

    Fama-French factors; GMM; Asset Pricing; Carhart model;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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