Explaining the Cross-Section of Stock Returns in France : Characteristics or Risk Factors?
Lajili, Souad (2007), Explaining the Cross-Section of Stock Returns in France : Characteristics or Risk Factors?, The European Journal of Finance, 13, 2, p. 145-158. http://dx.doi.org/10.1080/13518470600813557
TypeArticle accepté pour publication ou publié
Nom de la revueThe European Journal of Finance
MétadonnéesAfficher la notice complète
Résumé (EN)In this study, we test the three factor model of Fama and French and the Characteristic Model of Daniel and Titman (1997) on The French Stock Market over July 1976 to June 2001 period. Stocks are ranked by size and book to market ratios and then by ex-ante HML, SMB or Mkt loadings. The characteristic-based model predicts that these portfolios should have an average return of zero.While, the factor model says that these returns should be positive. Our results reject the factor model with characteristic balanced portfolios that load on the HML, SMB and MKt factors. Moreover, the three factor model predicts that the intercepts of regressions of the returns of these characteristicbalanced portfolios on the Fama and French factor portfolios are indistinguishable from zero. In contrast, the alternative hypothesis of the characteristic model says that these intercepts should be negative. Our results are consistent with the factor pricing model and inconsistent with the characteristic-based pricing model. Because the size and the value premiums are relatively small, our conclusions must be interpreted carefully. In contrast, market premium allows more powerful tests of the two models.
Mots-clésRisk factors; Fama and French Unconditional Model; Asset Pricing
Affichage des éléments liés par titre et auteur.
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