چکیده:
ama and French (1992) found that beta has little or no ability in explaining cross-sectional variation in stock returns, but thosevariables such as size and the book-to-market ratio do. Since the time of the original publication of the Fama and French findings, Controversyand intense debate has emerged in the academic literature over the empirical performance of beta and the CAPM. This paper compare CAPM versus Fama and French three factors model and investigates theexplanatory power of market beta, firm size, and book-to-market ratio, regarding the cross-sectional expected stock returns in Tehran stock exchange. The results indicate that Fama and French three factor modelhas strong explanatory power than CAPM and the explanatory power of market beta is significantly improved and successfully captures thecross-sectional variation in expected stock returns for the full sample period.
خلاصه ماشینی:
Tests of the Fama and French Three Factor Model in Iran Majid Rahmani ∗ Zeinab Salmani Jeloda ∗∗ Abstract ama and French (1992) found that beta has little or no ability in explaining cross-sectional variation in stock returns, but thosevariables such as size and the book-to-market ratio do.
This paper compare CAPM versus Fama and French three factors model and investigates theexplanatory power of market beta, firm size, and book-to-market ratio, regarding the cross-sectional expected stock returns in Tehran stock exchange.
The results indicate that Fama and French three factor modelhas strong explanatory power than CAPM and the explanatory power of market beta is significantly improved and successfully captures thecross-sectional variation in expected stock returns for the full sample period.
[2] Fama and French (1993) find that besides beta two additional factors - firm size and book-to-market ratio(BE/ME) play an important role in explaining the cross section of expected stock returns and overcoming the inability of the CAPM in explaining size effect, value effect, and other apparent anomalies.
[5] Larson (2005) defines Growth and Value Stocks based on Fama and French three 1- See Banz (1981), Basu (1983), Rosenberg, Lakonishok, Shleifer and Vishny (1994), Davis, Fama and French (2000), Pastor and Stambaugh (2000), Liew and Vassalou (2000) and Daniel, Titman and Wei (2001)...
Second we test whether the Fama and French (1993) three-factor model can explains the cross section of TSE expected stock returns for the period 1999-2009 better than CAPM.