Abstract
The literature has offered an interesting debate about whether the performance of Fama-French’s three-factor benchmark model is inadequate because it fails to pass some model specification tests and its R2 is not convincingly high in cross-sectional estimations. Previous studies have been quite limited, since they only focused on the time-series procedure with many models. We extend their work by providing a more robust investigation of the performance of several well-regarded pricing models in pooled portfolios and other portfolios sorted by new and important anomalies, using cross-sectional GMM tests for robustness. Finally, we find that, in addition to Fama and French’s five-factor model proposed in 1993, Fama-French’s three-factor model augmented by other factors usually outperforms Fama-French’s three-factor model across a significant proportion of different portfolios. In particular, Frazzini, Kabiller, and Pedersen’s model shows the best overall performance and consistency across different portfolios.
Original language | English |
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Pages (from-to) | 242-260 |
Number of pages | 19 |
Journal | Asia-Pacific Journal of Accounting & Economics |
Volume | 27 |
Issue number | 2 |
Early online date | 2018 |
DOIs | |
Publication status | Published - 3 Mar 2020 |
Keywords
- asset pricing models
- consistency
- different portfolios
- Expanding portfolios