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Applying the CAPM and the Fama--French models to the BRVM stock market

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  • Issouf Soumar�
  • Edoh Kossi Am�nounv�
  • Ousmane Diop
  • Dramane M�it�
  • Yao Djifa N'sougan

Abstract

This article applies and compares two asset-pricing models -- the Capital Asset Pricing Model (CAPM) and the Fama--French three-factor pricing model -- on the stocks of 28 companies listed on the Bourse R�gionale des Valeurs Mobilières (BRVM) for the period July 2001--December 2008. We find that 11 stocks satisfy the CAPM, and the market risk factor explains an average of only 11.32% of the excess stock return variations. When we apply the Fama--French model, we find that 10 of the 28 stocks satisfy the model's hypotheses and equations: for most of these securities, a CAPM-type model specification is rejected. When we add the size and book-to-market explanatory factors, the average adjusted R -super-2 increases to 20.40%. Both models, however, failed to explain the variations in returns of at least 60% of the stocks listed on this market.

Suggested Citation

  • Issouf Soumar� & Edoh Kossi Am�nounv� & Ousmane Diop & Dramane M�it� & Yao Djifa N'sougan, 2013. "Applying the CAPM and the Fama--French models to the BRVM stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 23(4), pages 275-285, February.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:4:p:275-285
    DOI: 10.1080/09603107.2012.718062
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    References listed on IDEAS

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    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Jagannathan, Ravi & Wang, Zhenyu, 1996. "The Conditional CAPM and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 51(1), pages 3-53, March.
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    4. Doron Avramov & Tarun Chordia, 2006. "Asset Pricing Models and Financial Market Anomalies," The Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 1001-1040.
    5. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    6. Graham Bornholt, 2007. "Extending the capital asset pricing model: the reward beta approach," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 47(1), pages 69-83, March.
    7. Samy Ben Naceur & Samir Ghazouani, 2007. "Asset Pricing and Cost of Equity in the Tunisian Banking Sector: Panel Data Evidence," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 36(1), pages 89-113, February.
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    Cited by:

    1. Cueto, José Manuel, 2019. "Models for expected returns with statistical factors," DES - Working Papers. Statistics and Econometrics. WS 28776, Universidad Carlos III de Madrid. Departamento de Estadística.
    2. Linh Nghiem, 2015. "Risk-return relationship: An empirical study of different statistical methods for estimating the Capital Asset Pricing Models (CAPM) and the Fama-French model for large cap stocks," Papers 1511.07101, arXiv.org.
    3. Boamah, Nicholas Addai & Watts, Edward & Loudon, Geoffrey, 2017. "Regionally integrated asset pricing on the African stock markets: Evidence from the Fama French and Carhart models," Journal of Economics and Business, Elsevier, vol. 92(C), pages 29-44.

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