The Formulation of the Four Factor Model when a Considerable Proportion of Firms is Dual-Listed
30 Pages Posted: 5 Sep 2014
Date Written: August 1, 2014
Abstract
We examine the performance of the Fama-French-Carhart four factor asset pricing model in an economy, Israel, where a relatively large proportion of shares (14.4% in our sample) are dually listed, i.e. trade also on NYSE or NASDAQ. We find that a hybrid model (adding U.S. or global factors to the local 4 factors model) performs only slightly better than the local model, casting doubt on the practical necessity of hybrid models. Further tests suggest that the dually listed shares should not be excluded when constructing the local factors.
Keywords: Local and hybrid four factor models; Dually-listed shares; Fama-French- Carhart model.
JEL Classification: G12, G15
Suggested Citation: Suggested Citation