Compare the Three and Four and Five Factor Models of Pricing of Fama and French Capital Assets to Predict Stock Returns of Companies Listed in Tehran Stock Exchange
DOI:
https://doi.org/10.24200/jmas.vol4iss04pp65-69Abstract
One of the basic criteria for decisions on the exchange is stock returns. Stock returns, alone, are having informational content and more actual and potential investors use it in financial analysis and forecasts. Many studies have been done on the relationship between risk and return. Fama and French purpose of the experiment was to know the relative importance of future stock returns, which at present, is different than the market value to their book value. Methodology: Fama and French, to predict stock returns were to work as a model became known three-factor model. In this model, the stock return was affected by three factors: beta, firm size and the ratio of book value to market value. In recent years, were presented and were studied three and four-factor model of Fama and French for evaluation pricing of capital assets and most recently, Fama and French also have provided their five-factor new model. The aim of this study was to compare the results of forecast three factor model and four-factor model and the five-factor model of Fama and French in Tehran Stock Exchange. Results: The results show that the five-factor model of Fama and French is a significant in Tehran Stock Exchange and in comparison the explanatory power of three and four and five factors models, the five-factor model was better than the three factor model and four factor model was better than the five factor model. Conclusion: So, using four factor models in financial analysis in Tehran stock exchange will result in the highest performance.References
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