COMPARISON OF EXPLANATORY POWER OF CARHART FOUR-FACTOR MODEL AND FAMA-FRENCH FIVE-FACTOR MODEL IN PREDICTION OF EXPECTED STOCK RETURNS

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HEZBI HASHEM; SALEHI ALLAHKARAM

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Paper Information

Journal: FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT) Year:2016 | Volume:7 | Issue:28 Page(s): 137-152

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Title

COMPARISON OF EXPLANATORY POWER OF CARHART FOUR-FACTOR MODEL AND FAMA-FRENCH FIVE-FACTOR MODEL IN PREDICTION OF EXPECTED STOCK RETURNS

Author(s)

HEZBI HASHEM | SALEHI ALLAHKARAM | Issue Writer Certificate

Keywords

SHARE RETURNQ2

FAMA-FRENCH THREE-FACTOR MODELQ2

CARHART FOUR-FACTOR MODELQ1

Abstract

This study aims to compare explanatory power of CARHART FOUR-FACTOR MODEL and Fama-French five-factor model in prediction of expected stock return in listed firms of Tehran Stock Exchange. To do this, a sample of 142 firms was selected from 2009 to 2013. In this study, hypotheses from multiple regression approach were evaluated using panel data method. Results show that Fama- French five-factor model has more explanatory power than CARHART FOUR-FACTOR MODEL in predicting firms' stock returns. Also, results indicate that adding two factors, profitability and investment, to three-factor model increases the model power in explanation of stock returns of firms.

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