Fama-French Five-Factor Asset Pricing Model: Testing Validity for Borsa Istanbul and German Stock Exchange

Purpose – Fama and French (2015, 2017) proposed to expand Fama and French (1993) three-factor (portfolio & the overall market factor, firm size, and book-to-market equity) model building two new factors (profitability and investment) on, resulting in a five-factor model. This paper investigates the validity of the five-factor asset-pricing model (FF5F) in BIST30 index in Borsa Istanbul and DAX30 Index in Germany Stock Exchange. Design/methodology/approach – Static panel data analysis is employed by the fixed-effects withingroup estimator for the period 2009Q2-2018Q4 with two different types of market indices BIST30 Index and DAX30 Index in order to investigate the validity of the five-factor asset-pricing model (FF5F). Findings – In overall, results demonstrate that there is not enough evidence to suggest the robustness of the five-factor model may be valid for stocks listed in DAX30 Index but provide evidence for two-factor model. As for, stocks listed in BIST30, we find enough empirical evidence to suggest that the four-factor model holds rather than the five-factor model. Discussion – Due to the differentiation of developed markets in terms of higher returns and different market dynamics it is therefore of utmost importance to assess the applicability of the FF5F model for developing countries. The findings of the present paper will assist a better evaluation of the risk factors faced by firms and investors.

___

Acaravci K.S. and Karaomer, Y. (2017). Fama-French Five Factor Model: Evidence from Turkey. International Journal of Economics and Financial Issues, 7(6), 130.

Aras, G., Çam, İ., Zavalsız, B. and Keskin, S. (2018). Fama-French Çok Faktör Varlık Fiyatlama Modellerinin Performanslarının Karşılaştırılması: Borsa İstanbul Üzerine Bir Uygulama. Journal of Istanbul University Journal of the School of Business Administration, 47(2).

Amézola Berenguer, L. (2017). A 5-factor Risk Model for European Stocks (Master's Thesis, Universitat Politècnica de Catalunya).

Baltagi, B. H. (Ed.). (2015). The Oxford Handbook of Panel Data. Oxford Handbooks.

Brückner, R., Lehmann, P., Schmidt, M. H. and Stehle, R. (2014). Fama/French factors for Germany: Which set is best, Working paper, Humboldt University Berlin.

Cerna, S., Donath, L. and Şeulean, V. (2008). Stabilitatea Financiară. Editura Universităţii de Vest. Timişoara.

Charitou, A. and Constantinidis, E. (2004): Size and Book-to-Market Factors in Earnings and Stock Returns: Empirical Evidence for Japan. Working paper, University of Cyprus.

Chen, L. and Zhang, L. (2009). An Equilibrium Three-Factor Model. NBER Working Paper, 13282.

Driscoll, J. C. and Kraay, A. C. (1998). Consistent Covariance Matrix Estimation with Spatially Dependent Panel Data. Review of Economics and Statistics, 80(4), 549-560.

Dirkx, P. and Peter, F. (2018). Implementing the Fama-French Five-Factor Model for the German Stock Market. Available at SSRN 3300642. doi:10.2139/ssrn.3300642

Fama, E. F. and French, K. R. (1993). Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33(1), 3-56.

Fama, E. F. and French, K. R. (2015). A Five-Factor Asset Pricing Model. Journal of Financial Economics, 116(1), 1-22.

Fama, E. F. and French, K. R. (2017). International Tests of a Five-Factor Asset Pricing Model. Journal of Financial Economics, 123(3), 441-463.

Hausman, J. A. (1978). Specification Tests in Econometrics. Econometrica: Journal of the Econometric Society, 1251- 1271.

Hu, G. X., Chen, C., Shao, Y. and Wang, J. (2019), Fama–French in China: Size and Value Factors in Chinese Stock Returns. International Review of Finance, 19: 3-44. doi:10.1111/irfi.12177

Im, K. S., Pesaran, M. H. and Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74.

Jareño, F., M. González, M. Tolentino and S. Rodríguez. (2018). Interest Rate Sensitivity of Spanish Companies. An Extension of the Fama and French Five-Factor Model. Acta Oeconomica 68 (4), 617–638. doi:10.1556/032.2018.68.4.7.

Janero, F. (2008). Spanish Stock Market Sensitivity to Real Interest and Inflation Rates: An Extension of the Stone Two-Factor Model with Factors of the Fama and French Three Factor Model. Applied Economics, 40, 3159-3171.

Lintner, J. (1965). Security Prices, Risk, and Maximal Gains from Diversification. The Journal of Finance, 20(4), 587-615.

Lin, Q. (2017). Noisy Prices and the Fama–French Five-Factor Asset Pricing Model in China. Emerging Markets Review, 31, 141-163

Ludwig, A. and Sløk, T. (2004). The Relationship between Stock Prices, House Prices and Consumption in OECD Countries. Topics in Macroeconomics, 4(1).

Malin, M. and Veeraraghavan, M. (2004). On the Robustness of the Fama and French Multifactor Model: Evidence from France, Germany, and the United Kingdom. International Journal of Business and Economics, 3(2), 155.

Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77-91.

Pesaran, M. H. (2007). A Simple Panel Unit Root Test in the Presence of Cross-Section Dependence. Journal of Applied Econometrics, 22(2), 265-312.

Pugdeepunt, M. V. (2016). Corporate Governance and Fama-French Five-Factor: Evidence from Stock Exchange of Thailand (Doctoral Dissertation, Thammasat University).

Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory, 13.

Sharpe, W. F. (1964). Capital Asset Prices: A theory of Market Equilibrium under Conditions of Risk. The Journal of Finance, 19(3), 425-442.

Şengün, G. and Amanov, A. (2019). Asset Price Channel: Evidence from Turkey. Doğuş Üniversitesi Dergisi, 20(2), 89-103.

Taha, R. and Elgiziry, K. (2016). A Five-Factor Asset Pricing Model: Empirical Evidence from Egypt. International Journal of Business, 21(4), 342.

Tatoğlu, F., Y. (2012), Panel Veri Ekonometrisi, Beta Yayınevi. ISBN 978-605-333-003-5

Tauscher, K. and Wallmeier, M. (2016). Portfolio Overlapping Bias in Tests of the Fama–French Three‐Factor Model. European Financial Management, 22(3), 367-393.

Vakilifard, H. R., Badrian, E. and Ebrahimi, M. (2017). A Comparison between Fama-French Five Factor Model and Carhart Four-Factor Model in Explaining the Stock Return of Companies Listed in the Tehran Stock Exchange. Journal of Asset Management and Financing, 5(1), 17-29.

Zeren, F., Yilmaz, T. and Belke, M. (2019). Testing the Validity of Fama French Five Factor Asset Pricing Model: Evidence from Turkey. Financial Studies, 97.
İşletme Araştırmaları Dergisi-Cover
  • ISSN: 1309-0712
  • Yayın Aralığı: Yılda 4 Sayı
  • Başlangıç: 2009
  • Yayıncı: Melih Topaloğlu
Sayıdaki Diğer Makaleler

Uluslararası Sermaye Hareketliliği İle Sağlanan Yabancı Yatırımcı Oranındaki Değişimin Borsa İstanbul Üzerine Etkisi

Murat ATİK

Güç Mesafesi ve Örgütsel Adaletin Politik Davranışlar Üzerindeki Etkisi

Ali Burak ULUS, Aysun KANBUR

İşletmelerde Stratejik Yönlülük Boyutları ile Hizmet Yenilik Yeteneği ve Pazar Performansı Arasındaki İlişki: Bir Araştırma

Nurhan PAPATYA, Gürcan PAPATYA, AHMET BUĞRA HAMŞIOĞLU

Kriz Dönemlerinde Konaklama Sektörü İşletmelerinin Müşteri İlişkileri Yönetimine Yönelik Uygulamaları: Türkiye-Rusya Uçak Krizi

Jennet JUMAYEVA, Cemalettin AKTEPE

Marka Hikâyesinin Anlatıya Dâhil Olma Üzerindeki Etkileri ve Sonuçları: İş Bankası 89. Yıl Reklam Örneği

Ezgi YILDIRIM, Selma KALYONCUOĞLU BABA

EUROCONTROL Üyesi Avrupa Hava Seyrüsefer Hizmet Sağlayıcı Kuruluşları Etkinlik Değerlerinin Veri Zarflama Analizi Yöntemi ile Belirlenmesi

Murat TAŞDEMİR, Erdal AYDIN

Sanal Kaytarma Davranışının İş Performansına Etkisinde İşe Bağlılığın Aracı Rolüne Yönelik Bilişim Sektöründe Bir Araştırma

Ahmet Tuncay ERDEM

Belediye Çalışanlarının Stratejik Planlamaya İlişkin Tutumları: Bursa Yıldırım Belediyesi Örneği

NİLÜFER RÜZGAR

Yiyecek İçecek İşletmelerinde Hizmet Kalitesinin Müşteri Vatandaşlık Davranışına Etkisi: İstanbul Örneği

Nihan YARMACI, Edanur KEFELİ

Bankalarda Etkinliğin Veri Zarflama Analizi ile Değerlendirilmesi: Türkiye’deki Kamu, Özel ve Yabancı Sermayeli Bankalar Üzerine Karşılaştırmalı Bir Araştırma

MEHMET SABRİ TOPAK, Yavuz ALACAATLI