Abstract
We evaluate and compare the performance of four popular factor pricing models: the capital asset pricing model, the Fama and French three-factor model, Carhart’s four-factor model, and the five-factor model of Fama and French. We aim to establish which of these models is most applicable in the Polish stock market. To do so, we employ a battery of tests—cross-sectional regressions, examination of one-way and two-way sorted portfolios, tests of monotonic relationships, and factor redundancy tests—and apply them to a sample of more than 1100 stocks for the years 2000–2018. The results indicate that the four-factor model outperforms the other models; it has the greatest explanatory ability for cross-sectional returns and is therefore well-suited for asset pricing in Poland.
| Original language | English |
|---|---|
| Pages (from-to) | 2039-2056 |
| Number of pages | 18 |
| Journal | Emerging Markets Finance and Trade |
| Volume | 55 |
| Issue number | 9 |
| Early online date | 15 Oct 2018 |
| DOIs | |
| Publication status | Published - 15 Jul 2019 |
| Externally published | Yes |
Keywords
- asset growth
- asset pricing
- equity anomalies
- factor models
- momentum
- Poland
- Polish stock market
- profitability
- size
- the cross-section of returns
- value