A better model? Testing of Fama and French six-factor model in Pakistan
This study examines the performance of the Fama and French six factor model and the alternative six-factor model in explaining anomalous return patterns using a broad sample of the Pakistani stock market from 2000 to 2017. This study is the first to test the applicability of these models in Pakistan...
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| Format: | Article |
| Language: | English |
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Institute of Business Administration
2022-07-01
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| Series: | Business Review |
| Subjects: | |
| Online Access: | https://ir.iba.edu.pk/businessreview/vol17/iss1/1/ |
| _version_ | 1797857922655453184 |
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| author | Mehak Younus |
| author_facet | Mehak Younus |
| author_sort | Mehak Younus |
| collection | DOAJ |
| description | This study examines the performance of the Fama and French six factor model and the alternative six-factor model in explaining anomalous return patterns using a broad sample of the Pakistani stock market from 2000 to 2017. This study is the first to test the applicability of these models in Pakistan and their performance in explaining anomalous returns. There are 11 anomalies taken, which proved to be significant in the Pakistani market. The GRS test is used with other time-series measures to check the power of the given models in explaining one-way sorted quintile portfolios. The results reveal that both models provide an incomplete description of anomalous returns. However, the six-factor model seems to be dominant with no major exception as it can explain 5 out of 11 anomalous portfolios returns, while the alternative model can explain four anomalies. The findings recommend that investors use the six-factor model because of its dominancy. It further recommends the investors about how they can maximize their returns by taking a long and short position in anomalous portfolios. Lastly, it is suggested to search for a better model to explain Pakistani stocks returns and capture anomalous patterns |
| first_indexed | 2024-04-09T21:04:41Z |
| format | Article |
| id | doaj.art-f99f402f14d24af7973146227ce8f63c |
| institution | Directory Open Access Journal |
| issn | 1990-6587 2788-9599 |
| language | English |
| last_indexed | 2024-04-09T21:04:41Z |
| publishDate | 2022-07-01 |
| publisher | Institute of Business Administration |
| record_format | Article |
| series | Business Review |
| spelling | doaj.art-f99f402f14d24af7973146227ce8f63c2023-03-29T03:46:17ZengInstitute of Business AdministrationBusiness Review1990-65872788-95992022-07-0117112710.54784/1990-6587.1456A better model? Testing of Fama and French six-factor model in PakistanMehak Younus0Shaheed Zulfikar Ali Bhutto Institute of Science and Technology This study examines the performance of the Fama and French six factor model and the alternative six-factor model in explaining anomalous return patterns using a broad sample of the Pakistani stock market from 2000 to 2017. This study is the first to test the applicability of these models in Pakistan and their performance in explaining anomalous returns. There are 11 anomalies taken, which proved to be significant in the Pakistani market. The GRS test is used with other time-series measures to check the power of the given models in explaining one-way sorted quintile portfolios. The results reveal that both models provide an incomplete description of anomalous returns. However, the six-factor model seems to be dominant with no major exception as it can explain 5 out of 11 anomalous portfolios returns, while the alternative model can explain four anomalies. The findings recommend that investors use the six-factor model because of its dominancy. It further recommends the investors about how they can maximize their returns by taking a long and short position in anomalous portfolios. Lastly, it is suggested to search for a better model to explain Pakistani stocks returns and capture anomalous patternshttps://ir.iba.edu.pk/businessreview/vol17/iss1/1/asset pricingfactor modelssix-factor modelpakistani stock marketgrs test |
| spellingShingle | Mehak Younus A better model? Testing of Fama and French six-factor model in Pakistan Business Review asset pricing factor models six-factor model pakistani stock market grs test |
| title | A better model? Testing of Fama and French six-factor model in Pakistan |
| title_full | A better model? Testing of Fama and French six-factor model in Pakistan |
| title_fullStr | A better model? Testing of Fama and French six-factor model in Pakistan |
| title_full_unstemmed | A better model? Testing of Fama and French six-factor model in Pakistan |
| title_short | A better model? Testing of Fama and French six-factor model in Pakistan |
| title_sort | better model testing of fama and french six factor model in pakistan |
| topic | asset pricing factor models six-factor model pakistani stock market grs test |
| url | https://ir.iba.edu.pk/businessreview/vol17/iss1/1/ |
| work_keys_str_mv | AT mehakyounus abettermodeltestingoffamaandfrenchsixfactormodelinpakistan AT mehakyounus bettermodeltestingoffamaandfrenchsixfactormodelinpakistan |