Four Factor Model in Indian Equities Market

Indian Institute of Management, Ahmedabad Working Paper No. 2013-09-05

21 Pages Posted: 2 Oct 2013 Last revised: 9 Sep 2014

See all articles by Sobhesh Kumar Agarwalla

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad

Joshy Jacob

Indian Institute of Management

Jayanth Rama Varma

Indian Institute of Management (IIM), Ahmedabad

Date Written: September 5, 2014

Abstract

We compute the Fama-French and momentum factor returns for the Indian equity market for the October 1993-December 2013 period. We differ from the previous studies on this topic in the Indian market in several significant ways. First, we cover a greater number of firms relative to the existing studies. Second, we exclude illiquid firms to ensure that the portfolios are investible. Third, we have classified firms into small and big using a more appropriate cut-off, considering the distribution of firm size. Fourth, as there are many instances of vanishing of public companies in India, we have computed the returns with a correction for the survival bias. During the period, the average annual return of the momentum factor was 21.9%; the average annual return on the value portfolio (HML) was 15.3%; that of the size factor (SMB) nearly 0%; and the average annual excess return on the market factor (MRP) was 11.5%. This is a revised version of our earlier paper on this topic. The revision is carried out to primarily accommodate the data of firms which are retrospectively added to the prowess database by CMIE. The time series of daily, monthly and yearly returns on the factors and the underlying portfolios are made available at an online data library. The authors would update the library on a monthly basis.

Keywords: Four factors, India, HML, WML, Momentum

JEL Classification: G12, C89

Suggested Citation

Agarwalla, Sobhesh Kumar and Jacob, Joshy and Varma, Jayanth Rama, Four Factor Model in Indian Equities Market (September 5, 2014). Indian Institute of Management, Ahmedabad Working Paper No. 2013-09-05. Available at SSRN: https://ssrn.com/abstract=2334482 or http://dx.doi.org/10.2139/ssrn.2334482

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India
91.79.66324865 (Phone)

Joshy Jacob (Contact Author)

Indian Institute of Management ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Jayanth Rama Varma

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

HOME PAGE: http://www.iimahd.ernet.in/~jrvarma/

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