On the Validity of the Augmented Fama-French Four-Factor Model
27 Pages Posted: 17 Feb 2009
Date Written: February 15, 2009
Abstract
This study investigates the performance of four-factor asset pricing model using Hong Kong stock returns. Our four-factor model is constructed by adding a momentum facgtor into the Fama and French's (1993) three-factor model. We find that the four-factor model does well in explaining return variation using Hong Kong data. Our results show evidence that all the four factors are significant in the model and intercepts are not significant. In addition, the reasonably high values of adjusted R squared and the insignificance of an additional explanatory variable of residula standard deviation provide supportive evidence to the model. The robustness of the model is also checked for two effects: up- and down-market conditions and seasonal behavior.
Keywords: Fama-French, four-factor model, momentum, up and down markets, seasonality
JEL Classification: G12, G15
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
By Nicholas Barberis, Andrei Shleifer, ...
-
A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets
By Harrison G. Hong and Jeremy C. Stein
-
By Louis K.c. Chan, Narasimhan Jegadeesh, ...
-
Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies
By Harrison G. Hong, Terence Lim, ...
-
Profitability of Momentum Strategies: An Evaluation of Alternative Explanations
-
Profitability of Momentum Strategies: an Evaluation of Alternative Explanations
-
When are Contrarian Profits Due to Stock Market Overreaction?
By Andrew W. Lo and A. Craig Mackinlay