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Comparison of CAPM, Three-Factor Fama-French Model and Five-Factor Fama-French Model for the Turkish Stock Market

In: Financial Management from an Emerging Market Perspective

Author

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  • Yasar Erdinc

Abstract

In this study, I try to test the capital asset pricing model (CAPM), three-factor Fama-French (3F-FF) model and five-factor Fama-French (5F-FF) model for the Turkish stock market. The sample is from June 2000 to May 2017. My results show that the five-factor model explains better the common variation in stock returns than the three-factor model and capital asset pricing model. Moreover, the CAPM has no power in explaining monthly excess returns of sorted portfolios. Although three-factor model seems to have significant coefficients, intercepts in this model have significant t-values indicating that the model has problems in explaining the portfolio returns. I use equal weight market portfolio for all the models in order to explain the cross-sectional variations in the stock returns.

Suggested Citation

  • Yasar Erdinc, 2018. "Comparison of CAPM, Three-Factor Fama-French Model and Five-Factor Fama-French Model for the Turkish Stock Market," Chapters, in: Soner Gokten & Guray Kucukkocaoglu (ed.), Financial Management from an Emerging Market Perspective, IntechOpen.
    • Handle: RePEc:ito:pchaps:120123
    DOI: 10.5772/intechopen.70867
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    More about this item

    Keywords

    CAPM; three-factor Fama-French model; five-factor Fama-French model; Turkish stock market; size; book to market; profitability; investment;
    All these keywords.

    JEL classification:

    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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