A Study to Check the Applicability of Fama and French, Three-Factor Model on S&P BSE- 500 Index
Journal Title: International Journal of Management, IT and Engineering - Year 2018, Vol 8, Issue 1
Abstract
This paper empirically examines the Fama-French threefactor model for the Indian stock market. In this study, the Fama French Model have been examined by taking a sample of top 96 companies on basis of market capitalization in BSE for a study period of five years, ranging from Nov,2012 to Nov,2017. In order to validate the results, the sample selection was made on the basis of continuous presence in S&P BSE 500 index for at least five years without fail. The study showed that market betas do not explain expected returns which are inconsistent with CAPM. The study observes a significant and zero intercept viz; portfolio returns are not being explained by factors outside of SMB and LMH. The size (SMB) - and value (LMH)-factors as surrogates for nonmarket-specific risk should have positive returns and negative returns respectively as per Fama and French. However, three portfolios S/L, B/M, B/H have significant negative SMB betas. Similarly S/M, S/H, B/M, B/H have significant positive LMH betas. These results do not support Fama and French model findings.
Authors and Affiliations
Dr. Rupinder Katoch
Keywords
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