An Application of Factor Pricing Models to the Polish Stock Market

Adam Zaremba*, Anna Czapkiewicz, Jan Jakub Szczygielski, Vitaly Kaganov

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)

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 languageEnglish
Pages (from-to)2039-2056
Number of pages18
JournalEmerging Markets Finance and Trade
Volume55
Issue number9
Early online date15 Oct 2018
DOIs
Publication statusPublished - 15 Jul 2019
Externally publishedYes

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