Revisiting Fama–French’s asset pricing model with an MCB volatility risk factor

Chen, Xiaoying; Gao, Nicholas Ray-Wang

doi:10.1108/jrf-07-2019-0130

Cited by 4 publications

(2 citation statements)

References 30 publications

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“…Further, the value factor remains significant despite the inclusion of profitability and investment factors in explaining stock returns in Pakistan Shaikh et al (2019), South Korea Kang et al (2019), Jordan Gharaibeh & Al-Qudah (2020), Vietnam Ryan et al (2021), China and India (Singh et al, 2022). Such evidence is also observed in a more recent study by (Chen & Gao, 2020).…”

Section: Research Themes and Discussionmentioning

confidence: 59%

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

Sohor,

Low

2024

IJARAFMS

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Despite producing mixed findings, the Fama and French's (2015) model has been widely used to explain stock returns. This paper conducts a systematic literature review of the Fama and French's (2015) five factor model to evaluate its empirical validity in estimating the average returns of stocks. The review revolves around four major themes: performance of the fivefactor model in explaining stock returns and whether it outperforms the three-factor model in stock returns estimation; predictive power of the two new factors in the five-factor model namely profitability and investment factors; value factor's redundancy for describing average stock returns after accounting for profitability and investment factors; and the exploration of other factors that could enhance the model's explanatory power. The paper used the PRISMA (The Preferred Reporting Items for Systematic Reviews and Meta-Analysis) method as a search strategy to conduct the systematic reviews. Highly cited articles published the Web of Science database from 2015 to 2022 were explored and a final sample of 61 were used in the review. The reviews find that in most studies, the Fama-French five-factor model is superior to the three-factor model in predicting the average stock market return at the national and regional levels. On the predictive power of profitability and investment factors, the findings were mixed. Similar conclusion was reached for the redundancy of value factor in explaining stock returns. Several other factors have also been found to increase the explanatory power of the five-factor model. The systematic literature of this paper evaluates several specific research questions related to Fama-French models, thereby providing researchers an understanding of the research topic and its evolution over time. Future review could be further expanded further to include articles from the Scopus-indexed journals. Insights from this paper are also useful for investors engaging in factor investing and in formulating asset allocation strategy.

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Section: Research Themes and Discussionmentioning

confidence: 59%

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

Sohor,

Low

2024

IJARAFMS

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“…They conclude that the five-factor model describes better the average return performance than the traditional three-factor model. In the same line Chen and Gao (2020), report that the five-factor model performs better than the three-factor model.…”

Section: Literature Reviewmentioning

confidence: 96%

Asset Pricing Models and the Performance of European Energy Indices

Galyfianakis

2024

TEL

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In this paper, we analyze the abnormal returns of European Energy indices and the factor loadings based on the well-known Fama and French threefactor (FF3) and five-factor (FF5) models. We extend this methodology by introducing one more factor, a European volatility index (VSTOXX t ) to the FF3 and FF5 methodologies and we use data from Refinitiv Eikonovera period lasting from 2010 to 2023. The econometric findings indicate that Energy indices do not produce significant alphas, verifying literature studies on negative excess returns. Observations also show medium betas, indicating a medium level of systematic risk. Furthermore, we notice sufficient evidence that the European Energy Indices tilt to large cap, value stocks, robust operating profitability, and low-risk investment strategies. Lastly, the performance and the validity of adding an extra determinant factor on both the FF3 and FF5 models resulted in a novelty finding of volatility tilting and dispersion of returns bias on European Energy portfolios. Robustness tests of a complementary index, (MSCI), obtain the same results. This paper contributes to the growing empirical literature on Fama and French three-factor and five-factor models and provides additional insight for academics, policymakers, and investors.

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Testing multifactor asset pricing models in the stock market

Khanh,

Duong,

Anh

2024

CBSR

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lthough the superiority of Fama-French (FF) five-factor model in capturing the United States (US) equity returns, this model performs poorly in other stock markets (Fama & French, 2017). Using the monthly data of nearly 600 Vietnamese published firms from 2008 to 2022, the primary purpose of this paper is to analyze and examine the performance of four famous multifactor asset pricing models: the capital asset pricing model (CAPM), the Carhart four factor model, and the FF three-factor and five-factor models. We document the preference for the Carhart four-factor model over other models in producing a precise description to Vietnamese stock returns. The CAPM cannot give a reasonable explanation to the variation of Vietnamese stock returns, implying that market risk only accounts for a small proportion of the risk of holding Vietnamese stocks. Furthermore, adding the profitability and investment factors does not improve the explanatory power of asset pricing models in Vietnam, inconsistent with the result reported in the US stock market (Fama & French, 2015, 2020).

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Revisiting Fama–French’s asset pricing model with an MCB volatility risk factor

Cited by 4 publications

References 30 publications

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

Asset Pricing Models and the Performance of European Energy Indices

Testing multifactor asset pricing models in the stock market

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