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http://ssrn.com/abstract=1462631
 
 

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Asset Pricing, the Fama-French Factor Model and the Implications of Quantile Regression Analysis


David E. Allen


University of South Australia; School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN)

Abhay Kumar-Singh


Edith Cowan University; Financial Research Network (FIRN)

Robert J. Powell


Edith Cowan University - School of Accounting, Finance and Economics; Financial Research Network (FIRN)

August 27, 2009

22nd Australasian Finance and Banking Conference 2009

Abstract:     
In traditional tests of asset pricing theory Ordinary Least Squares (OLS) regression methods are used in empirical tests of factor models, which implies a focus on the means of the distributions of covariates. The work of Koenker and Basset (1982) and Koenker (2005) provides an alternative via Quantile regression featuring inference about conditional quantile functions. This study empirically examines the behaviour of the three risk factors from Fama-French Three Factor model of stock returns, beyond the mean of the distribution, by using quantile regressions and a US data set. The study not only shows that the factor models does not necessarily follow a linear relationship but also shows that the traditional method of OLS become less effective when it comes to analysing the extremes within a distribution, which is often of key interest to investors and risk managers.

Keywords: Factor models, OLS, quantile regression

JEL Classification: G12, C21

working papers series





Not Available For Download

Date posted: August 30, 2009 ; Last revised: June 30, 2010

Suggested Citation

Allen, David E. and Kumar-Singh, Abhay and Powell, Robert J., Asset Pricing, the Fama-French Factor Model and the Implications of Quantile Regression Analysis (August 27, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: http://ssrn.com/abstract=1462631

Contact Information

David Edmund Allen (Contact Author)
University of South Australia ( email )
Centre for Applied Financial Studies
GPO Box 2471
Adelaide, 2471
Australia
School of Mathematics and Statistics, The University of Sydney ( email )
School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia
HOME PAGE: http://www.maths.usyd.edu.au
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Abhay Kumar-Singh
Edith Cowan University ( email )
Mount Lawley Campus
Perth
Churchlands 6018 WA
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Robert J. Powell
Edith Cowan University - School of Accounting, Finance and Economics ( email )
Joondalup Campus
Perth
Joondalup 6027, WA
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

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