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Explaining the Cross-section of Stock Returns in France: Characteristics or Risk Factors?

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  • Souad Lajili-Jarjir

Abstract

In this study, the three-factor model of Fama and French and the 'characteristic model' of Daniel and Titman are tested using the French Stock Market. Stocks are ranked by size and book to market ratio and then by ex-ante β, HML or SMB loadings. Based on average returns, results reject the factor model with 'characteristic balanced' portfolios. In contrast, in time-series regressions, results are consistent with the factor pricing model and inconsistent with the characteristic-based pricing model. Because the value premium is small, conclusions must be interpreted carefully. However, size and market premiums allow more powerful tests of the two models.

Suggested Citation

  • Souad Lajili-Jarjir, 2007. "Explaining the Cross-section of Stock Returns in France: Characteristics or Risk Factors?," The European Journal of Finance, Taylor & Francis Journals, vol. 13(2), pages 145-158.
    • Handle: RePEc:taf:eurjfi:v:13:y:2007:i:2:p:145-158
    DOI: 10.1080/13518470600813557
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    Cited by:

    1. Nawazish Mirza & Krishna Reddy, 2017. "Asset Pricing in a Developing Economy: Evidence from Pakistan," Economics Bulletin, AccessEcon, vol. 37(4), pages 2483-2495.
    2. Marc Desban & Souad Lajili Jarjir, 2018. "Corporate ownership structure, market anomalies and asset pricing," Journal of Asset Management, Palgrave Macmillan, vol. 19(5), pages 316-340, September.
    3. Christian Fieberg & Armin Varmaz & Thorsten Poddig, 2016. "Covariances vs. characteristics: what does explain the cross section of the German stock market returns?," Business Research, Springer;German Academic Association for Business Research, vol. 9(1), pages 27-50, April.

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