FAMA AND FRENCH THREE FACTOR MODEL APPLICATION IN THE PAKISTAN STOCK EXCHANGE (PSE)

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Volume 13 Issue 1 2017

Author(s):

Athar Iqbal
Assistant Professor, Iqra University.
athar@iqra.edu.pk

Akhtiar Ali
akhtiar.ali@hotmail.com

Peter Xavier D’Abreo
peter_dabreo80@hotmail.com
Abstract This research has been carried out to test empirically the application of the Fama and French three factor model on the Pakistan Stock Exchange covering forty listed companies using annual data from 1984 to 2012. The author selected excess return as a dependent variable and three independent variables market risk, size of the firm, and the book to the market value of the firms in the portfolio. To test the hypotheses, the author used the panel least square method. The result shows that all independent variables are significant and have signed as predicted by theoretical understanding. From our result, we interpret that the three factors model explains returns in its simplified form on the long term horizon better than a single-factor model like CAPM. The findings of the research paper suggest that developing economies like Pakistan investors and portfolio managers can better understand by applying multiple variable models and their modified form rather than only relying on the CAMP covariance sensitivity model.
Keywords Modern portfolio theory, excess return, risk and return, three factors
Year 2017
Volume 13
Issue 1
Type Short Report
Recognized by Higher Education Commission of Pakistan, HEC
Category "Y"
Journal Name IBT Journal of Business Studies
Publisher Name ILMA University
Jel Classification G3, G11, G12, G20
DOI http://dx.doi.org/10.46745/ilma.jbs.2017.13.01.01
ISSN no (E, Electronic) 2409-6520
ISSN no (P, Print) 2416-8393
Country Pakistan
City Karachi
Institution Type University
Journal Type Open Access
Type of Review Double Blind Peer Reviewed
Format PDF
Paper Link http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/13.1/1.pdf
Page 1-11
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