The Fama French Model or the Capital Asset Pricing Model: International Evidence

Pereira, Alves; Paulo, F

doi:10.2139/ssrn.2151268

Cited by 1 publication

(1 citation statement)

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“…The seminal papers developed by Fama and French (1992, 1995 add non-market factors to address size risk, value risk, profitability risk, and investment risk. In order to predict risk-return, many studies have applied the multifactor model to the stock market (Taneja 2010;Hu et al 2019;Sehgal and Balakrishnan 2013;Santhi and Gurunathan 2014;Alves 2013). As CAPM and the Fama-French models offer investors a new insight into investment under conditions of certainty in the stock market, more studies are extending the implications of these two models (Paliienko et al 2020;Sehrawat et al 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

An Extended Fama-French Multi-Factor Model in Direct Real Estate Investing

Yiu

Xiong

Cheung

2022

JRFM

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Understanding risk-adjusted returns in real estate investment are crucial, but little is known about the risk-adjusted returns for direct real estate. This paper examines risk-adjusted total returns by developing an extended capital asset pricing model (CAPM) to investigate whether direct real estate returns compensate for their risk levels. Based on a panel dataset of the residential property transaction in 62 Territorial Authorities of New Zealand from 2002Q1 to 2018Q4, a direct real estate portfolio performance in the single-factor CAPM model is compared with the national housing markets stock markets and REITs markets in New Zealand before the pandemic. The results demonstrate that the direct real estate returns outperform the market returns with a significant positive alpha and beta smaller than one but positive. The alpha is further evaluated by the five-factor CAPM model, which includes the factors of liquidity risk, value risk, time risk, credit-rating risk, and currency risk. The assessment shows that most of the excess return (alpha) can be attributed to direct real estate market risks.

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