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The Three Factor Capital Asset Pricing Model And The Indian Equity Market
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Book Synopsis Revisting CAPM And FAMA French Three Factor Model In Indian Equity Market by : Neharika Sobti
Download or read book Revisting CAPM And FAMA French Three Factor Model In Indian Equity Market written by Neharika Sobti and published by . This book was released on 2019 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: The study aims to explore the applicability of the two most widely used asset pricing models - Capital Asset Pricing Model (CAPM) and Fama French Three Factor Model in the Indian equity market for the period 2005-2015. The study follows Fama Macbeth (1973) methodology of two pass regression to compare both models and draw new insights with regard to informational efficiency of the Indian equity markets. An attempt has been made to evaluate the ability of the alternative asset pricing model to explain variation in returns owing to firm specific characteristics like size and value for 498 companies listed on S&P CNX 500. The study found that Fama French Three Factor Model is a better model than one factor CAPM. A non-linear relationship was found between excess returns and beta (systematic risk) for CAPM contradicting the previous studies. Size effect stills prevails in India equity market whereas value effect is not discernable for the current period.
Book Synopsis The Three-Factor Capital Asset Pricing Model and the Indian Equity Market by : Daniel William Kaines
Download or read book The Three-Factor Capital Asset Pricing Model and the Indian Equity Market written by Daniel William Kaines and published by . This book was released on 2017 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study aims to test one of the most widely used asset pricing models - the Three-factor capital asset pricing model on the developing market of Indian equities. The study uses a sample of 29 companies from the Bombay stock exchanges SENSEX index covering the 5-year period of 2011-2016. This study aids in filling the large gap seen in asset price testing of developing markets, contributing to the fields understanding of what factors capture the cross-section of average returns in a developing market. The study followed the Fama/French methodology (Fama & French, 1995) (French, Data Library, 2017), as well as drawing from the methodology used by Sobti (Sobti, 2016). The study found that the Three-factor model did not capture a significant proportion of average cross-sectional returns, when compared to the models explanatory capabilities seen in studies of developed markets. The findings from the study did demonstrate the presence of both market beta and the size effect in excess returns, though the value effect was not evident. The performance of the model suggested that along with market beta, and size, additional factors are responsible for explaining excess returns within the Indian equity market. The study highlighted the need for further research in the areas of market efficiency and asset pricing. Furthermore, additional research is needed in testing which company fundamentals are present in stock returns, characterised by the Indian equity market as risk factors.
Book Synopsis Three-Factor Model of Asset Pricing by : Mobin Anwar
Download or read book Three-Factor Model of Asset Pricing written by Mobin Anwar and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Prediction of price fluctuations has always been interesting for academicians, practitioners and investors. However, price fluctuations can never be exactly predicted, but some trends can be drawn in price fluctuations. The first landmark in stock pricing was Capital Asset Pricing Model (CAPM) given by William Sharpe in 1964. After that a deluge of pragmatic evidence came up and challenged the CAPM. Despite being criticized by several researchers, CAPM became a basis for the development of other models. Fama and French gave a three-factor model and claimed that it better explains the price fluctuations of stocks than CAPM, and the anomalies of CAPM are captured by the three-factor model. The present study is an attempt to find the explanatory power of Fama and French three-factor model in the Indian stock market and covers the period from April 1, 2009 to March 31, 2016. The Fama and French three-factor model failed to capture the individual asset returns. On the other hand, it explains the portfolio asset returns sorted on the basis of size and value. A significant effect of market risk premium, size premium and value premium was detected on the returns of the assets.
Book Synopsis Testing the Fama and French Three-Factor Model and its Variants for the Indian Stock Returns by : Bhavna Bahl
Download or read book Testing the Fama and French Three-Factor Model and its Variants for the Indian Stock Returns written by Bhavna Bahl and published by . This book was released on 2006 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: I empirically study the Fama and French three-factor model of stock returns along with its variants, including the one-factor Capital Asset Pricing Model for 79 stocks listed on the BSE-100 stock market index for India. These sample stocks are split into six portfolios sorted on size and book-to-market equity ratio. The factor portfolios that explain the returns are the market factor, size factor (SMB) and value factor (HML). I find strong evidence for the market factor in all the portfolios, it being regarded with having highest explanatory power. The SMB and HML factors can not be clearly ranked in this regard. On the basis of the adjusted R², I confirm that the three-factor model captures better the common variation in the stock returns than the CAPM, the average adjusted R² being 87% for the former model and 76% for the latter model. I further carry out a joint test on the constant term in the portfolio regressions using the GRS test statistic, checking for any abnormal returns that are not captured by the factor portfolios. Using this statistic, I again find that the three-factor model of Fama and French fairs better in explaining the cross-section of returns in the portfolios than its variants and the CAPM. I have also checked for any seasonal effects that could be present in the sample and have found none.
Book Synopsis Equity Markets in India by : Shveta Singh
Download or read book Equity Markets in India written by Shveta Singh and published by Springer. This book was released on 2016-05-06 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: The book presents a comprehensive view of the Indian equity markets over the past two decades (1994-2014). Equity markets constitute the most important segment of stock exchanges; in fact, the status of equity returns is, by and large, considered as a barometer of the state of a country’s economy. Returns earned by the equity investors on their funds invested in equity markets have become a decisive factor in the growth of such markets. In this context, the book discusses all the major aspects of equity returns and also conducts a dis-aggregative analysis based on underlying factors like age, size, ownership structure, industry affiliation/sector, among others, to explain the factors affecting returns and risk. While on the one hand the study ascertains the market rates of return (earned) on equities from the investors’ perspective (by including both the capital gains and the dividend income), it also shows how to compute the rates of returns on equities from the corporate perspective (that is, rate of return earned on equity funds). It further assesses the required/expected rate of return and examines the volatility in stock returns, with a focus on its behaviour during the period of the study. It deepens investors’ understanding of equity investment, helping them to make more-informed investments. While of interest to the investor community, this book also contributes significantly to the existing literature on market returns and is a valuable reference resource for academics, researchers and market participants, financial institutions and other intermediaries, regulators and policy makers.
Book Synopsis The Handbook of Equity Market Anomalies by : Leonard Zacks
Download or read book The Handbook of Equity Market Anomalies written by Leonard Zacks and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Book Synopsis Asset Pricing in Indian Stock Market by : Sanjay Sehgal
Download or read book Asset Pricing in Indian Stock Market written by Sanjay Sehgal and published by . This book was released on 2005-02-10 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This book empirically shows that the multi-factor asset pricing models, like the Fama-French model, provide a better description of average stock returns compared to the more widely accepted capital asset pricing model (CAPM). It is suggested that the market practitioners should re-design their investment management tool box by replacing CAPM with the Fama-French model for industry applications such as cost of capital estimation, corporate valuation, estimating fair rates of return, assessing stock market efficiency and portfolio performance evaluation. It is also revealed that size-based, value-based, reversal-based and momentum-based trading strategies do not provide extra-normal returns in India. The book will be a useful reference for mutual fund managers, portfolio managers, financial consultants and investors at large. Academicians and students in the area of investment management and corporate finance can also benefit from it."
Book Synopsis Evidence to Support Multifactor Asset Pricing Models by : Supriya Maheshwari
Download or read book Evidence to Support Multifactor Asset Pricing Models written by Supriya Maheshwari and published by . This book was released on 2016 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Emerging stock market returns have been extensively studied by academic community over the past two decades. However, there is still no consensus among the researchers and practitioners as to which asset pricing models should be used to explain returns in these markets. The basic objective of the study is to evaluate the power and performance of multi-factor asset pricing models (three and four factor model) over the traditional one factor CAPM, using the data from one of the fastest growing emerging market: India. The study using a large sample data of 470 listed stocks over a period of 16 years stretching from January 1997 to March 2013, evaluate the relevance of Fama and French three factor model as well as liquidity augmented four factor model in explaining the stock return variations in the Indian stock market. The study employs time series regression approach to examine the impact of market risk, size risk, value risk and liquidity risk on stock returns. The overall results of the study provide support to the multi-dimensional nature of risk and suggest the use of multi-factor asset pricing models for consideration in investment decisions. Both Fama and French three factor model and liquidity augmented four factor model were found to be superior than traditional one factor CAPM. Though, liquidity augmented four factor model was found to be slightly better in explaining Indian stock returns as compared to Fama and French three factor model.
Book Synopsis Vigorousness of Asset Pricing Models by : Mobin Anwar
Download or read book Vigorousness of Asset Pricing Models written by Mobin Anwar and published by . This book was released on 2020 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The volatile behavior of price of capital assets is always interesting for different stakeholders of capital markets. It is fluctuation in the price of the asset which is responsible for the capital gain or loss of the investor. What a sensible investor wants, is a model that will predict the rise and fall of price of securities up to a greater degree. A significant milestone in the journey of prediction of price of securities was Capital Asset Pricing Model (CAPM) in 1964. After CAPM, there was a flood-like situation in the literature of asset pricing models. Fama and French (1993) proposed three-factor model, which is an extension of the conventional CAPM. The present study is an attempt to detect the presence of monotonic models in Indian capital market. The study deals with the period from April 1, 2009 to March 31, 2016. The study confirms that the two-factor model with value premium as extended variable is better than the prolonged CAPM and the superiority of Fama and French three-factor model in Indian stock market. The study also confirms the wellbeing of CAPM.
Book Synopsis A New Model of Capital Asset Prices by : James W. Kolari
Download or read book A New Model of Capital Asset Prices written by James W. Kolari and published by Springer Nature. This book was released on 2021-03-01 with total page 326 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book proposes a new capital asset pricing model dubbed the ZCAPM that outperforms other popular models in empirical tests using US stock returns. The ZCAPM is derived from Fischer Black’s well-known zero-beta CAPM, itself a more general form of the famous capital asset pricing model (CAPM) by 1990 Nobel Laureate William Sharpe and others. It is widely accepted that the CAPM has failed in its theoretical relation between market beta risk and average stock returns, as numerous studies have shown that it does not work in the real world with empirical stock return data. The upshot of the CAPM’s failure is that many new factors have been proposed by researchers. However, the number of factors proposed by authors has steadily increased into the hundreds over the past three decades. This new ZCAPM is a path-breaking asset pricing model that is shown to outperform popular models currently in practice in finance across different test assets and time periods. Since asset pricing is central to the field of finance, it can be broadly employed across many areas, including investment analysis, cost of equity analyses, valuation, corporate decision making, pension portfolio management, etc. The ZCAPM represents a revolution in finance that proves the CAPM as conceived by Sharpe and others is alive and well in a new form, and will certainly be of interest to academics, researchers, students, and professionals of finance, investing, and economics.
Book Synopsis Size Effect in Indian Stock Market by : Vanita Tripathi
Download or read book Size Effect in Indian Stock Market written by Vanita Tripathi and published by Serials Publications. This book was released on 2008 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Handbook of the Fundamentals of Financial Decision Making by : Leonard C. MacLean
Download or read book Handbook of the Fundamentals of Financial Decision Making written by Leonard C. MacLean and published by World Scientific. This book was released on 2013 with total page 941 pages. Available in PDF, EPUB and Kindle. Book excerpt: This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II.Part I is concerned with Decision Making Under Uncertainty. This includes subsections on Arbitrage, Utility Theory, Risk Aversion and Static Portfolio Theory, and Stochastic Dominance. Part II is concerned with Dynamic Modeling that is the transition for static decision making to multiperiod decision making. The analysis starts with Risk Measures and then discusses Dynamic Portfolio Theory, Tactical Asset Allocation and Asset-Liability Management Using Utility and Goal Based Consumption-Investment Decision Models.A comprehensive set of problems both computational and review and mind expanding with many unsolved problems are in an accompanying problems book. The handbook plus the book of problems form a very strong set of materials for PhD and Masters courses both as the main or as supplementary text in finance theory, financial decision making and portfolio theory. For researchers, it is a valuable resource being an up to date treatment of topics in the classic books on these topics by Johnathan Ingersoll in 1988, and William Ziemba and Raymond Vickson in 1975 (updated 2 nd edition published in 2006).
Book Synopsis Capital Asset Pricing Model and Industry Effect by : Shweta Bajpai
Download or read book Capital Asset Pricing Model and Industry Effect written by Shweta Bajpai and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Capital Asset Pricing Model (CAPM) is the fundamental model for asset pricing. In addition to the systematic risk, various factors (size effect, leverage effect, E/P ratio effect, liquidity effect, etc.) have been considered to explain asset pricing in the recent and advanced models (like Fama-French model and Carhart model). This paper provides a new factor of industry effect in addition to several other factors explained in the past. In this paper, the dummy variable regression method is used, which helps in explaining the service and non-service industry effect on asset pricing. The sample of this study contains daily return of 290 stocks of NSE CNX 500 index for 10 years. For correction of nonsynchronous trading error in the beta, the adjusted beta calculated with the help of Dimson model is used. The analysis is conducted separately for before the financial crisis and after the financial crisis. This study confirms the presence of industry effect in the return generating process of stocks in the Indian equity market. The study elaborates the interactive effect of beta and industry factor.
Book Synopsis Risk-Return Relationship and Portfolio Management by : Raj S. Dhankar
Download or read book Risk-Return Relationship and Portfolio Management written by Raj S. Dhankar and published by Springer Nature. This book was released on 2019-10-24 with total page 323 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book covers all aspects of modern finance relating to portfolio theory and risk–return relationship, offering a comprehensive guide to the importance, measurement and application of the risk–return hypothesis in portfolio management. It is divided into five parts: Part I discusses the valuation of capital assets and presents various techniques and models used in this context. Part II then addresses market efficiency and capital market models, particularly focusing on measuring market efficiency, which is a crucial factor in making correct investment decisions. It also analyzes the major capital market models like CAPM and APT to determine to what extent they are suitable for use in developing economies. Part III highlights the significance of risk–return analysis as a prerequisite for investment decisions, while Part IV examines the selection and performance appraisals of portfolios against the backdrop of the risk–return relationship. It also examines new tools such as the value-at-risk application for mutual funds and the applications of the price-to-earnings ratio in portfolio performance measurement. Lastly, Part V explores contemporary issues in finance, including the relevance of Islamic finance in the increasingly volatile global financial system.
Book Synopsis Rational Sources of Momentum Profits by : Sanjay Sehgal
Download or read book Rational Sources of Momentum Profits written by Sanjay Sehgal and published by . This book was released on 2006 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we evaluate if there are any momentum patterns in Indian stock returns. We report strong momentum profits for individual stocks as well as a wide range of characteristic-sorted portfolios. The momentum returns are not captured by standard CAPM. However, the Fama-French three-factor model explains momentum as the characteristic-sorted momentum portfolios tend to load on size and book equity to market equity factors. Our results suggest that there are rational sources of momentum profits in the Indian environment. The findings are in contrast with those of US where the momentum explanation is tilted towards delayed price reaction to firm-specific information. Perhaps, a more complex market like US requires an asset pricing model that has a factor structure which is more elaborate than the Fama-French model. Our work is a step towards resolving the momentum controversy.
Book Synopsis Indian Financial Sector by : Rakesh Mohan
Download or read book Indian Financial Sector written by Rakesh Mohan and published by International Monetary Fund. This book was released on 2017-01-20 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper traces the story of Indian financial sector over the period 1950–2015. In identifying the trends and turns of Indian financial sector, the paper adopts a three period classification viz., (a) the 1950s and 1960s, which exhibited some elements of instability associated with laissez faire but underdeveloped banking; (b) the 1970s and 1980s that experienced the process of financial development across the country under government auspices, accompanied by a degree of financial repression; and (c) the period since the 1990s till date, that has been characterized by gradual and calibrated financial deepening and liberalization. Focusing more the third period, the paper argues that as a consequence of successive reforms over the past 25 years, there has been significant progress in making interest and exchange rates largely market determined, though the exchange rate regime remains one of managed float, and some interest rates remain administered. Considerable competition has been introduced in the banking sector through new private sector banks, but public sector banks continue have a dominant share in the market. Contractual savings systems have been improved, but pension funds in India are still in their infancy. Similarly, despite the introduction of new private sector insurance companies coverage of insurance can expand much further, which would also provide greater depth to the financial markets. The extent of development along all the segments of the financial market has not been uniform. While the equity market is quite developed, activities in the private debt market are predominantly confined to private placement form and continue to be limited to the bluechip companies. Going forward, the future areas for development in the Indian financial sector would include further reduction of public ownership in banks and insurance companies, expansion of the contractual savings system through more rapid expansion of the insurance and pension systems, greater spread of mutual funds, and development of institutional investors. It is only then that both the equity and debt markets will display greater breadth as well as depth, along with greater domestic liquidity. At the same time, while reforming the financial sector, the Indian authorities had to constantly keep the issues of equity and efficiency in mind.
Book Synopsis Multifactor Assets Pricing Model by : Khushboo Sagar
Download or read book Multifactor Assets Pricing Model written by Khushboo Sagar and published by . This book was released on 2020 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: Generous consideration has been pursued to the empirical testing of multi factor assets pricing models. However, literature provides mixed kind of evidences in the support of multi factor assets pricing model. This study reviews 20 research articles based on multi factor assets pricing model and examines 25 research papers based on the empirically testing of multi factor assets pricing model published during 2001 and 2018 to study the multi factor assets pricing model in the Indian context as well as foreign context. CAPM is a popular normative model used by researchers to explain the relationship between risk and expected return of a risky asset which was developed by Sharpe (1964) and Lintner (1965). This model takes only one risk factor which is the excess market portfolio return (Market premium). Because of poor performance of CAPM in explaining realized returns, the Fama and French three factor asset pricing model (1993) was developed. Fama and French (1993) documented the size effect and the value effect that were not included in the CAPM, generally known as CAPM anomalies. Mark M. Carhart (1997) developed the Carhart four factor model. It is an extension of the FF three factor model with one another factor i.e. momentum factor effect for asset pricing of stocks. In view of the limitations of the earlier three-factor model, Fama and French five-factor asset pricing model (2014) was developed. Fama and French (2014) came with profitability pattern and investment pattern in average stock return along with the market premium, size premium and value premium. This paper may be an expedient source of information to the academics, financial analyst and researchers to understand the asset pricing model.
