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Which Factors Are Priced? An Application of the Fama French Three-Factor Model in Australia

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  • Duc Hong Vo

Abstract

type="main" xml:id="ecpa12119-abs-0001"> Various empirical studies on the application of the Fama French three-factor model have been attempted and the conclusions are mixed on which factors from the model are priced in the Australian context. Different approaches to portfolio formations have been adopted in different studies. This empirical study is conducted to examine the robustness of the estimates under various approaches to portfolio formation and to provide additional evidence on the debate of the “relevance” of the Fama French three-factor model in Australian regulatory decisions. Using the Fama and MacBeth (1973)'s two-stage cross-sectional regression technique on the period of five years, the standard Australian regulatory cycle, from July 2009 to May 2014, the findings from this study are mixed. It is argued that while the application of the Fama French three-factor model is interesting for research endeavour, the adoption of this model into public policy is problematic and as such, not recommended.

Suggested Citation

  • Duc Hong Vo, 2015. "Which Factors Are Priced? An Application of the Fama French Three-Factor Model in Australia," Economic Papers, The Economic Society of Australia, vol. 34(4), pages 290-301, December.
    • Handle: RePEc:bla:econpa:v:34:y:2015:i:4:p:290-301
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    File URL: http://hdl.handle.net/10.1111/ecpa.2015.34.issue-4
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    Citations

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    Cited by:

    1. Fahad Ali & RongRong He & YueXiang Jiang, 2018. "Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market," Economies, MDPI, vol. 6(1), pages 1-24, February.
    2. Ruan, Qingsong & Yang, Bingchan, 2017. "The effects of common risk factors on stock returns: A detrended cross-correlation analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 483(C), pages 362-374.
    3. Kenneth Clements & Liang Li, 2017. "Understanding resource investments," Applied Economics, Taylor & Francis Journals, vol. 49(20), pages 1950-1962, April.
    4. Duc Hong Vo, 2021. "Portfolio Optimization and Diversification in China: Policy Implications for Vietnam and Other Emerging Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(1), pages 223-238, January.
    5. Thang Cong Nguyen & Tan Ngoc Vu & Duc Hong Vo & Michael McAleer, 2020. "Systematic Risk at the Industry Level: A Case Study of Australia," Risks, MDPI, vol. 8(2), pages 1-12, April.

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