IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2016-04-71.html
   My bibliography  Save this article

Pricing Ability of Four Factor Model using Quantile Regression: Evidences from India

Author

Listed:
  • Prashant Sharma

    (Jaipuria Institute of Management, Jaipur, Rajasthan, India,)

  • Prashant Gupta

    (International Management Institute, New Delhi, India)

  • Anurag Singh

    (Jaipuria Institute of Management, Jaipur, Rajasthan, India.)

Abstract

With the assumption that the returns are normally distributed with no fat tails, most of the existing studies have used ordinary least square (OLS) method to test the pricing ability of asset pricing models. These assumptions are not valid in numerous cases. Thus, to overcome such problem, the present study tests the pricing ability of Carhart (1997) four factor model using quantile regression which provides superior fitting of pricing factors than the traditional OLS model. The study uses daily data of Indian firms for period from December 1993 to March 2016. The results of the study reveal that the quantile regression model is having superior fitting across all percentile levels than OLS as it fails to fit these four factors across all percentile levels.

Suggested Citation

  • Prashant Sharma & Prashant Gupta & Anurag Singh, 2016. "Pricing Ability of Four Factor Model using Quantile Regression: Evidences from India," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1815-1826.
    • Handle: RePEc:eco:journ1:2016-04-71
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/2997/pdf
    Download Restriction: no
    File URL: http://www.econjournals.com/index.php/ijefi/article/view/2997/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Varma, Jayanth R., 2013. "Four Factor Model in Indian Equities Market," IIMA Working Papers WP2013-09-05, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    3. Michelle L. Barnes & Anthony W. Hughes, 2002. "A quantile regression analysis of the cross section of stock market returns," Working Papers 02-2, Federal Reserve Bank of Boston.
    4. Debarati Basu & Deepak Chawla, 2010. "An Empirical Test of CAPM—The Case of Indian Stock Market," Global Business Review, International Management Institute, vol. 11(2), pages 209-220, June.
    5. Chan, Louis K. C. & Lakonishok, Josef, 1992. "Robust Measurement of Beta Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(2), pages 265-282, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David E. Allen & Abhay K. Singh & Robert J. Powell & Michael McAleer & James Taylor & Lyn Thomas, 2013. "Return-Volatility Relationship: Insights from Linear and Non-Linear Quantile Regression," Tinbergen Institute Discussion Papers 13-020/III, Tinbergen Institute.
    2. Sebastien Valeyre & Sofiane Aboura & Denis Grebenkov, 2019. "The Reactive Beta Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 42(1), pages 71-113, March.
    3. Pedro Antonio Martín-Cervantes & María del Carmen Valls Martínez, 2023. "Unraveling the relationship between betas and ESG scores through the Random Forests methodology," Risk Management, Palgrave Macmillan, vol. 25(3), pages 1-29, September.
    4. Rajesh Pathak & Thanos Verousis & Yogesh Chauhan, 2017. "Information Content of Implicit Spot Prices Embedded in Single Stock Future Prices: Evidence from Indian Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 16(2), pages 169-187, August.
    5. Neharika Sobti, 2018. "Does Size, Value and Seasonal Effects Still Persist in Indian Equity Markets?," Vision, , vol. 22(1), pages 11-21, March.
    6. David E Allen & Abhay K Singh & Robert J Powell & Michael McAleer & James Taylor & Lyn Thomas, 2012. "The Volatility-Return Relationship:Insights from Linear and Non-Linear Quantile Regressions," KIER Working Papers 831, Kyoto University, Institute of Economic Research.
    7. Renu Jonwall & Seema Gupta & Shuchi Pahuja, 2024. "Do socially responsible indices outperform conventional indices? Evidence from before and after the onset of Covid‐19," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4995-5011, September.
    8. Rahul Roy & Santhakumar Shijin, 2018. "Dissecting anomalies and dynamic human capital: The global evidence," Post-Print hal-01660135, HAL.
    9. S. S. S. Kumar, 2018. "Sensex and Nifty Indices: Are They the Right Benchmarks for Mutual Funds in India?," Jindal Journal of Business Research, , vol. 7(1), pages 1-12, June.
    10. Tariq Aziz & Valeed Ahmad Ansari, 2017. "Idiosyncratic volatility and stock returns: Indian evidence," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1420998-142, January.
    11. Wan-Ni Lai & Claire Y. T. Chen & Edward W. Sun, 2022. "Risk factor extraction with quantile regression method," Annals of Operations Research, Springer, vol. 316(2), pages 1543-1572, September.
    12. R. Douglas Martin & Daniel Z. Xia, 2022. "Efficient bias robust regression for time series factor models," Journal of Asset Management, Palgrave Macmillan, vol. 23(3), pages 215-234, May.
    13. Gatchev, Vladimir A. & Seth, Rama & Singh, Ajai & Vishwanatha, S.R., 2023. "Price bands and their effects on equity markets: Evidence from a natural experiment," Journal of Financial Markets, Elsevier, vol. 66(C).
    14. Sobhesh Kumar Agarwalla & Joshy Jacob & Jayanth R. Varma, 2017. "Size, Value, and Momentum in Indian Equities," Vikalpa: The Journal for Decision Makers, , vol. 42(4), pages 211-219, December.
    15. Meligkotsidou, Loukia & Vrontos, Ioannis D. & Vrontos, Spyridon D., 2009. "Quantile regression analysis of hedge fund strategies," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 264-279, March.
    16. Neupane, Biwesh & Thapa, Chandra & Marshall, Andrew & Neupane, Suman, 2021. "Mimicking insider trades," Journal of Corporate Finance, Elsevier, vol. 68(C).
    17. Edelen, Roger M., 1999. "Investor flows and the assessed performance of open-end mutual funds," Journal of Financial Economics, Elsevier, vol. 53(3), pages 439-466, September.
    18. Swamy, Vighneswara & Dharani, M. & Takeda, Fumiko, 2019. "Investor attention and Google Search Volume Index: Evidence from an emerging market using quantile regression analysis," Research in International Business and Finance, Elsevier, vol. 50(C), pages 1-17.
    19. Joshy Jacob & Pradeep K.P. & Jayanth R.Varma, 2022. "Performance of quality factor in Indian Equity Market," IIMA Working Papers WP 2022-11-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    20. David M. Ritzwoller & Joseph P. Romano, 2019. "Uncertainty in the Hot Hand Fallacy: Detecting Streaky Alternatives to Random Bernoulli Sequences," Papers 1908.01406, arXiv.org, revised Apr 2021.

    More about this item

    Keywords

    Asset Pricing; Fama-French Factor Model; Quantile Regression; Cahart's Momentum;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2016-04-71. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.