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Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

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  • François-Eric Racicot
  • William F. Rentz

Abstract

Fama and French (FF, 2015) propose a five-factor asset pricing model that captures size, value, profitability and investment patterns. The primary purpose here is to further investigate this new model using an improved GMM-based robust instrumental variables technique. A further purpose is to explore the relationship among the FF factors and the Pástor–Stambaugh (PS, 2003) liquidity factor. We conclude that except for the market factor, all of the factors including liquidity are not significant at even the 5% level using our GMM approach for almost all of the FF 12 sectors.

Suggested Citation

  • François-Eric Racicot & William F. Rentz, 2016. "Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments," Applied Economics Letters, Taylor & Francis Journals, vol. 23(6), pages 444-448, April.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:6:p:444-448
    DOI: 10.1080/13504851.2015.1080798
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    Cited by:

    1. Molero-González, L. & Trinidad-Segovia, J.E. & Sánchez-Granero, M.A. & García-Medina, A., 2023. "Market Beta is not dead: An approach from Random Matrix Theory," Finance Research Letters, Elsevier, vol. 55(PA).
    2. Canepa, Alessandra & de la O. González, María & Skinner, Frank S., 2020. "Hedge fund strategies: A non-parametric analysis," International Review of Financial Analysis, Elsevier, vol. 67(C).
    3. Rahul Roy & Santhakumar Shijin, 2018. "A six-factor asset pricing model," Papers 1810.07790, arXiv.org.
    4. Güler ARAS & İlhan ÇAM & Bilal ZAVALSIZ & Serkan KESKİN, 2018. "Fama-French Çok Faktör Varlık Fiyatlama Modellerinin Performanslarının Karşılaştırılması: Borsa İstanbul Üzerine Bir Uygulama," Istanbul Business Research, Istanbul University Business School, vol. 47(2), pages 183-207, November.
    5. Anshul Verma & Riccardo Junior Buonocore & Tiziana di Matteo, 2017. "A cluster driven log-volatility factor model: a deepening on the source of the volatility clustering," Papers 1712.02138, arXiv.org, revised May 2018.
    6. Poshakwale, Sunil S. & Chandorkar, Pankaj & Agarwal, Vineet, 2019. "Implied volatility and the cross section of stock returns in the UK," Research in International Business and Finance, Elsevier, vol. 48(C), pages 271-286.
    7. González, María de la O & Jareño, Francisco, 2019. "Testing extensions of Fama & French models: A quantile regression approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 188-204.
    8. Racicot, François-Éric & Rentz, William F., 2018. "Does Illiquidity Matter? An Errors-in-Variables Perspective/¿Es importante la iliquidez? Un análisis desde el enfoque de errores en variables," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 36, pages 251-262, Enero.
    9. Rahul Roy & Santhakumar Shijin, 2018. "A six-factor asset pricing model," Post-Print hal-01878923, HAL.
    10. Vanitha Swaminathan & Sayan Gupta & Kevin Lane Keller & Donald Lehmann, 2022. "Brand actions and financial consequences: a review of key findings and directions for future research," Journal of the Academy of Marketing Science, Springer, vol. 50(4), pages 639-664, July.

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