A Better Model? An Empirical Investigation of the Fama-French Five-Factor Model in Australia

34 Pages Posted: 7 Jan 2015 Last revised: 9 Mar 2015

See all articles by Mardy Chiah

Mardy Chiah

Swinburne University of Technology

Daniel Chai

Monash University

Angel Zhong

RMIT University - School of Economics, Finance and Marketing

Multiple version iconThere are 3 versions of this paper

Date Written: February 3, 2015

Abstract

Recently, Fama and French (2014) propose a five-factor model by adding profitability and investment factors to their three-factor model. This model outperforms the three-factor model previously proposed by Fama and French (1993). Using an extensive sample over the 1982 to 2013 period, we investigate the performance of the five-factor model in pricing Australian equities. We find that the five-factor model is able to explain more asset-pricing anomalies than the three-factor model, which supports the superiority of the five-factor model. We also find that despite the results documented by Fama and French (2014), the book-to-market factor retains its explanatory power in the presence of the investment and profitability factors. Our study provides an update to the existing Australian asset pricing literature.

Keywords: Size; Book-to-market; Asset pricing; Fama-French model; Australian evidence

JEL Classification: G12

Suggested Citation

Chiah, Mardy and Chai, Daniel and Zhong, Angel, A Better Model? An Empirical Investigation of the Fama-French Five-Factor Model in Australia (February 3, 2015). Available at SSRN: https://ssrn.com/abstract=2545379 or http://dx.doi.org/10.2139/ssrn.2545379

Mardy Chiah

Swinburne University of Technology ( email )

Cnr Wakefield and William Streets, Hawthorn Victor
3122 Victoria, Victoria 3122
Australia

Daniel Chai (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Angel Zhong

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

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