Advances in Economics, Management and Political Sciences
- The Open Access Proceedings Series for Conferences
Proceedings of the 7th International Conference on Economic Management and Green Development
Series Vol. 42 , 10 November 2023
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An Analysis of the Fama-French Three-Factor Model’s Capacity to Account for Cross-sectional Volatility in Stock Returns
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Abstract
The study’s main focus is on the Fama-French Three-Factor Model’s capacity to account for cross-sectional volatility in stock returns. The Fama-French Three-Factor Model was used to assess a sample of 720 equity funds and determine each fund’s excess returns and three-factor risk exposures. The exposure of each element was then tested using linear regression to see if it could predict the excess returns. The study’s focus is on the shortcomings of the traditional Capital Asset Pricing Model (CAPM) and the possibility that the 3-factor model could offer a more precise and thorough explanation of stock returns. The empirical results indicate that it may not be robust all the time, and there could be other factors functioning meanwhile, which are not captured by the model. Furthermore, the Efficient Market Hypothesis (EMH) may not be effective and accurate in its strictest form. The study’s empirical examination of the Three-Factor Model and its implications for the Efficient Market Hypothesis (EMH) and other related ideas are what give it its value.
Keywords
The Fama-French Three-Factor Model, EMH, size factor (SMB), value factor (HML)
References
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Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 7th International Conference on Economic Management and Green Development
- ISBN (Print)
- 978-1-83558-105-6
- ISBN (Online)
- 978-1-83558-106-3
- Published Date
- 10 November 2023
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/42/20232069
- Copyright
- 10 November 2023
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited