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<p>The asset pricing theory introduced by Fama and French (2015) documents five systematic common risk factors for equity valuation, such as: (a) market beta, (b) firm size, (c) firm value, (d) profitability and (e) investment strategy. However, corporate finance literature does not provide us with a particularly robust check if the FF5 model is equally exposed to estimate equity returns in an emerging market. Hence, based on Fama and Macbeth (1973) as well as Fama and French (1993, 2015, 2020), this paper applies multivariate regression (time series &amp; cross-sectional) analysis for the robust test of common risk factors and risk premia respectively in an emerging market context, and finally validates that all of the systematic risk factors are significant except firm profitability and investment strategy. We found that the distinguishing semi-strong level of market efficiency influences the explanatory power of the underlying risk exposure for stock return performance differently in an emerging market. The finding could be important in estimating equity fair pricing that is yet to be examined for an emerging market. Therefore, with the reconfirmedthree significant common risk factors, the market practitioners, policy makers, financial analysts, and, above all, investors can estimate equity value appropriately, and thereby take optimal financial and investment decisions.</p>
</abstract>

The asset pricing theory introduced by Fama and French (2015) documents five systematic common risk factors for equity valuation, such as: (a) market beta, (b) firm size, (c) firm value, (d) profitability and (e) investment strategy. However, corporate finance literature does not provide us with a particularly robust check if the FF5 model is equally exposed to estimate equity returns in an emerging market. Hence, based on Fama and Macbeth (1973) as well as Fama and French (1993, 2015, 2020), this paper applies multivariate regression (time series & cross-sectional) analysis for the robust test of common risk factors and risk premia respectively in an emerging market context, and finally validates that all of the systematic risk factors are significant except firm profitability and investment strategy. We found that the distinguishing semi-strong level of market efficiency influences the explanatory power of the underlying risk exposure for stock return performance differently in an emerging market. The finding could be important in estimating equity fair pricing that is yet to be examined for an emerging market. Therefore, with the reconfirmedthree significant common risk factors, the market practitioners, policy makers, financial analysts, and, above all, investors can estimate equity value appropriately, and thereby take optimal financial and investment decisions.

Asset Pricing Puzzle: New Evidence of Fama-French Five-Factors in Emerging Market Perspectives

Real Estate Management and Valuation

This work is licensed under the Creative Commons Attribution 4.0 International License.

The asset pricing theory introduced by Fama and French (2015) documents five systematic common risk factors for equity valuation, such as: (a) market beta, (b)...

Asset Pricing Puzzle: New Evidence of Fama-French Five-Factors in Emerging Market Perspectives

Publié en ligne: 22 sept. 2022

Pages: 73 - 85

DOI: https://doi.org/10.2478/remav-2022-0022

Mots clés
asset pricing theory, systematic risks FF5 model, security pricing, time series, cross-sectional analysis

© 2022 Mohammed Sawkat Hossain, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Asset Pricing Puzzle: New Evidence of Fama-French Five-Factors in Emerging Market Perspectives

Publié en ligne: 22 sept. 2022

Pages: 73 - 85

DOI: https://doi.org/10.2478/remav-2022-0022

Mots clésasset pricing theory, systematic risks FF5 model, security pricing, time series, cross-sectional analysis

© 2022 Mohammed Sawkat Hossain, published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

Mots clés
asset pricing theory, systematic risks FF5 model, security pricing, time series, cross-sectional analysis