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Robustness of Fama-French Three Factor Model: Further Evidence for Indian Stock Market

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  • Sanjay Sehgal
  • A. Balakrishnan

Abstract

In this article, we re-examine the efficacy of one factor capital asset pricing model (CAPM) and Fama-French three factor asset pricing model (FF model) in explaining the returns on various portfolios constructed based upon company characteristics such as size and value. Data is employed from 1996 to 2010 for 465 companies which form part of BSE-500 index. We use the same methodological procedures of Fama-French (1993 and 1996) for constructing the portfolios. This article evaluates the robustness of FF model with its standard version (Market Capitalization–Price to Book ratio) as well as alternative versions. We find that FF model does a better job than CAPM by explaining the returns on most of the portfolios constructed based on company characteristics. We also find that the alternative versions of FF model are robust in explaining the returns on various characteristics sorted portfolios.

Suggested Citation

  • Sanjay Sehgal & A. Balakrishnan, 2013. "Robustness of Fama-French Three Factor Model: Further Evidence for Indian Stock Market," Vision, , vol. 17(2), pages 119-127, June.
    • Handle: RePEc:sae:vision:v:17:y:2013:i:2:p:119-127
    DOI: 10.1177/0972262912483526
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    Cited by:

    1. Asheesh Pandey & Sanjay Sehgal, 2016. "Explaining Size Effect for Indian Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(1), pages 45-68, March.
    2. Sawaliya, Priya & Sinha, Pankaj, 2018. "Behaviour of asset pricing models in pre and post-recession period: an evidence from India," MPRA Paper 93084, University Library of Munich, Germany, revised 22 Jan 2019.
    3. Aziz, Tariq & Ansari, Valeed Ahmad, 2014. "Size and value premiums in the Indian stock market," MPRA Paper 60451, University Library of Munich, Germany.

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