Estimation of Fama and French Model with Augmented Risk Factors: Case of KSE-Pakistan

Syed Asim Shah, Abdul Ghafoor, Muhammad Asif Khan

Abstract


This paper finds the empirical evidence on the applicability of Fama and French model on Pakistan Stockexchange. The emerging markets have different traits or characteristics as compare to the developed markets.There is lack of evidence that whether the size and book-to-market equity affect the emerging markets or not.The Fama and French took two extreme points to form the portfolios SMB (small minus big) and HML (highminus low), as risk is not static there can be number of numerous factors which effect the stock returns. We willtake three points for both factors namely; small, medium and big for SMB and high, medium and low for HML.In addition, wants to see the effect of medium capitalize firms and medium book-to-market firms. The mainpurpose behind this to address the Pakistan market and find the applicability of fama and french model for theemerging market, along with this find out whether the CAPM, Traditional Fama & French or Modified Fama &French provide the more appropriate information for risk return relationship, on monthly data for this purpose.As Iqbal and Brooks (2007) found that daily, data provide more reliable and informative risk return relationshipas compare to the monthly and weekly for both beta and for Fama and French factors.


Full Text: PDF DOI: 10.5539/ijbm.v9n9p161

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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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