Size and value premiums in the Indian stock market

Aziz, Tariq and Ansari, Valeed Ahmad (2014): Size and value premiums in the Indian stock market. Published in: Pacific Business Review International , Vol. 7, No. 4 : pp. 74-80.

Abstract

The poor empirical record of the CAPM paved the way towards the development of multi-factor asset pricing models. The three-factor model of Fama and French (1993) is regarded as a ground-breaking multi-factor asset pricing model. This paper examines the performance of the three-factor model of Fama and French (1993) in the Indian stock market for the period 2000-2012 using BSE-500 stocks as sample. The results suggest the presence of significant size and value premiums in the Indian stock market during the sample period. The three-factor model performs better than the CAPM, as the GRS test is unable to reject it.

• Item Type: MPRA Paper
• Language: English
• Keywords: asset pricing, Fama-French three factor model, Indian stock market
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates

References

Amihud, Y., &Mendelson, H. (1986). Asset pricing and the bid-ask spread. Journal of Financial Economics, 17(2), 223-249.

Ansari, V. A. (2000). Capital asset pricing model: should we stop using it?.Vikalpa, 25(1), 55-64.

Bahl, B. (2006). Testing the Fama and French Three-Factor Model and Its Variants for the Indian Stock Returns. Available at http://ssrn.com/abstract=950899

Banz, R. W. (1981). The relationship between return and market value of common stocks. Journal of Financial Economics, 9(1), 3-18.

Basu, S. (1977). Investment performance of common stocks in relation to their price‐earnings ratios: A test of the efficient market hypothesis. The Journal of Finance, 32(3), 663-682.

Chan, L. K., Hamao, Y., &Lakonishok, J. (1991). Fundamentals and stock returns in Japan. The Journal of Finance, 46(5), 1739-1764.

Connor, G., &Sehgal, S. (2003). Tests of the Fama-French model in India. Decision, 30(2), July–December, 1–20.

Daniel, K., & Titman, S. (1997). Evidence on the characteristics of cross sectional variation in stock returns. The Journal of Finance, 52(1), 1-33.

DeBondt, W. F., &Thaler, R. (1985). Does the stock market overreact?. The Journal of Finance, 40(3), 793-805.

Fama, E. F., & French, K. R. (1992). The cross‐section of expected stock returns. The Journal of Finance, 47(2), 427-465. Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.

Fama, E. F., & French, K. R. (1998). Value versus growth: The international evidence. The Journal of Finance, 53(6), 1975-1999.

Fama, E. F., & French, K. R. (2012). Size, value, and momentum in international stock returns. Journal of Financial Economics, 105(3), 457-472.

Fama, E. F., &MacBeth, J. D. (1973). Risk, return, and equilibrium: Empirical tests. The Journal of Political Economy, 607-636.

Gibbons, M. R., Ross, S. A., &Shanken, J. (1989). A test of the efficiency of a given portfolio. Econometrica: Journal of the Econometric Society, 1121-1152.

Harvey, C. R., & Siddique, A. (2000). Conditional skewness in asset pricing tests. The Journal of Finance, 55(3), 1263-1295.

Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of Finance, 48(1), 65-91.

Lakonishok, J., Shleifer, A., &Vishny, R. W. (1994). Contrarian investment, extrapolation, and risk. The Journal of Finance, 49(5), 1541-1578.

Lewellen, J., Nagel, S., &Shanken, J. (2010). A skeptical appraisal of asset pricing tests. Journal of Financial Economics, 96(2), 175-194.

Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics, 13-37.

Roll, R. (1977). A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory. Journal of Financial Economics, 4(2), 129-176.

Sehgal, S., &Balakrishnan, A. (2013). Robustness of Fama-French Three Factor Model: Further Evidence for Indian Stock Market. Vision: The Journal of Business Perspective, 17(2), 119-127.

Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425-442.

Taneja, Y. P. (2010). Revisiting Fama French Three-Factor Model in Indian Stock Market. Vision: The Journal of Business Perspective, 14(4), 267-274.

Zhang, L. (2005). The value premium. The Journal of Finance, 60(1), 67-103.