Does Fama-French Three Factor Model Outweigh the CAPM Model? Evidence from the Dhaka Stock Exchange

19 Pages Posted: 27 Jul 2015

See all articles by Mohammad Abu Sayeed

Mohammad Abu Sayeed

University of Tasmania, Tasmanian School of Business and Economics, Students

Mahfuza Khatun

Department of Finance and Banking (Jahangirnagar University)

Biplob Chowdhury

University of Tasmania

Date Written: December 20, 2014

Abstract

In this paper we compare the explanatory power of a single index model with the multifactor asset-pricing model of Fama and French (1996) for Dhaka stock exchange for the period of January 1, 2010 to December 31, 2012. We find that all the three factors have significant determining impact on stock returns. Moreover, the three factor model has higher explanatory power than the CAPM to account for time series variation of stock returns. Our findings show that firm size and book-to-market equity helps to explain the variation in average stock returns in a meaningful manner. In summary, our findings suggest that CAPM beta is not alone sufficient to explain the average expected stock returns in Bangladesh.

Keywords: Portfolio theory, capital asset pricing model, multifactor model, size, book-to-market equity.

JEL Classification: G110, G120, G150

Suggested Citation

Sayeed, Mohammad Abu and Khatun, Mahfuza and Chowdhury, Biplob, Does Fama-French Three Factor Model Outweigh the CAPM Model? Evidence from the Dhaka Stock Exchange (December 20, 2014). Available at SSRN: https://ssrn.com/abstract=2636131 or http://dx.doi.org/10.2139/ssrn.2636131

Mohammad Abu Sayeed (Contact Author)

University of Tasmania, Tasmanian School of Business and Economics, Students ( email )

Hobart
Australia

Mahfuza Khatun

Department of Finance and Banking (Jahangirnagar University) ( email )

Savar
Faculty of Business Studies, Savar
Dhaka, Dhaka 1342
Bangladesh

HOME PAGE: http://https://www.juniv.edu/teachers/mahfuza02

Biplob Chowdhury

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

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