Year: 2004
Type: dissertation
Abstract: This project compares and tests the effectiveness of two asset-pricing models: the Sharpe (1 964)-Lintner (1 965) capital asset pricing model (CAPM) and Fama and French (1 993) three-factor model. Effectiveness is measured by focusing on the models' alphas and includes the mean absolute value of alphas (MAVA) and the Gibbons, Ross and Shanken (1 989), or GRS F-Test. Fama and French (1 996) claim their model outperforms the CAPM because their MAVA is smaller than that of the CAPM in a universe of twenty-five portfolios sorted by size and book-to-market equity. This paper examines these twenty-five portfolios over longer time periods. The threefactor model outperforms the CAPM according to the MAVA. However, both models are rejected by the GRS test. A dataset composed of twelve industries is also employed, where the MAVA of the CAPM is smaller than that of the three-factor model and the CAPM is not rejected by the GRS F-test.
Source: Summit (Simon Fraser University)
Author: Nima Billou
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2167647189