The Determinants of Risk Premia on the Italian Stock Market: Empirical Evidence on Common Factors in Asset Pricing Models

37 Pages Posted: 2 Dec 2012

See all articles by Paola Brighi

Paola Brighi

University of Bologna - Department of Management

Stefano d'Addona

University of Roma Tre

Antonio Carlo Francesco Della Bina

University of Bologna - Department of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2012

Abstract

We study the pricing factor structure of Italian equity returns using 25 years of data. A two-step empirical analysis is provided where first we estimate an unrestricted multifactor model to test if there is any evidence of misspecification. Then, we estimate the restricted model through the Generalized Methods of Moments. We find that the market premium and the size premium for stocks are confirmed for a domestic Italian investor. On the contrary, weak evidence is found for the value premium. Finally, we highlight, that augmenting the model with a momentum factor may at least partially improve its performance. As a robustness check we control if the above results also hold for three shorter sub-periods taking into account the macroeconomic and financial conditions that characterized the Italian economy. The results are generally confirmed in the case of the size and value factors while the momentum effect shows an irregular trend playing any role in the first sub-period but becoming more important in the subsequent two.

Keywords: Fama-French factors, GMM, Asset Pricing, Carhart model

JEL Classification: G10, G12

Suggested Citation

Brighi, Paola and d'Addona, Stefano and Della Bina, Antonio Carlo Francesco, The Determinants of Risk Premia on the Italian Stock Market: Empirical Evidence on Common Factors in Asset Pricing Models (December 1, 2012). Available at SSRN: https://ssrn.com/abstract=2183739 or http://dx.doi.org/10.2139/ssrn.2183739

Paola Brighi

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
Bologna 40126
Italy

Stefano D'Addona (Contact Author)

University of Roma Tre ( email )

Via Chiabrera, 199
Rome, 00145
Italy

Antonio Carlo Francesco Della Bina

University of Bologna - Department of Management ( email )

Piazza Scaravilli 1
Bologna, Bologna 40126
Italy

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