Modelling Stock Returns in India: Fama and French Revisited

Pacific Business Review International, Volume 9 Issue 7, Jan. 2017

8 Pages Posted: 23 Jun 2017 Last revised: 15 Aug 2019

See all articles by Rajeev Kumar Upadhyay

Rajeev Kumar Upadhyay

Sri Aurobindo College (Evening), Delhi University

Date Written: January 1, 2017

Abstract

Since reforms, Indian security market has gone through significant changes and as result the efficiency of many models developed earlier might have been affected. The same may be true with three factors CAPM. This study aims to test the validity of three factors CAPM model proposed by Fama and French (1993) in changed Indian context. For the study, assessment period is 1999-2013 and BSE-500 has been taken as proxy for market. Results show that in Indian market, no size effect and a weak value effect exists but size or value of stocks cannot discriminate stocks robustly. Beta is significant and none of the three factors alone can explain the variations in the expected return but two or three factors together can explain to some degree. The ability of three factors CAPM in explaining the expected return increases during low GDP growth period and falls during high GDP growth period.

Keywords: Fama and French Model, CAPM, Value Effect, Size Effect

JEL Classification: G12, G14

Suggested Citation

Upadhyay, Rajeev Kumar, Modelling Stock Returns in India: Fama and French Revisited (January 1, 2017). Pacific Business Review International, Volume 9 Issue 7, Jan. 2017, Available at SSRN: https://ssrn.com/abstract=2991128 or http://dx.doi.org/10.2139/ssrn.2991128

Rajeev Kumar Upadhyay (Contact Author)

Sri Aurobindo College (Evening), Delhi University ( email )

South Campus
Delhi
India

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