The Application of Augmented Fama-French Three Factor Model in Explaining Tehran Stock Exchange’ s Firms Return Changes

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BARAKCHIAN SEYED MAHDI; Joshaghani Hosein; Azarmsa seyed Ehsan; Ahmadi Renani Saber; Ekbatani Sepehr

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Journal: Iranian Journal of Economic Research Year:2019 | Volume:24 | Issue:80 Page(s): 1-36

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Title

The Application of Augmented Fama-French Three Factor Model in Explaining Tehran Stock Exchange’ s Firms Return Changes

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Keywords

Three-factor ModelQ1

Market returnQ2

Size RiskQ1

Book to Market ValueQ1

Price to EarningQ1

Abstract

Fama and French (1993) show that systematic risk of market, size, and Book to Market Value constitute the common risk factors in the United States exchange market. In this study, we examine the explaining power of their model in Tehran stock exchange (TSE) for the period of 1991-2015, and explore the validity of the model in TSE. While Book to Market Value risk is of less importance for investors in TSE, Size Risk is essential and is priced for a large number of firms. Further, we investigate the contribution of each risk factor in bull and bear markets. It is shown that in bull markets, investors pay more attention to Size Risk, and in bear markets, risk of Book to Market Value is more important in determining the risk factor. Finally, we introduce risk of Price to Earning as a common risk factor and add it to Fama-French Three-factor Model. We emphasize its role alongside the other three factors in stock pricing in TSE.

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APA: Copy

BARAKCHIAN, SEYED MAHDI, Joshaghani, Hosein, Azarmsa, seyed Ehsan, Ahmadi Renani, Saber, & Ekbatani, Sepehr. (2019). The Application of Augmented Fama-French Three Factor Model in Explaining Tehran Stock Exchange’ s Firms Return Changes. IRANIAN ECONOMIC RESEARCH, 24(80 ), 1-36. SID. https://sid.ir/paper/365263/en

Vancouver: Copy

BARAKCHIAN SEYED MAHDI, Joshaghani Hosein, Azarmsa seyed Ehsan, Ahmadi Renani Saber, Ekbatani Sepehr. The Application of Augmented Fama-French Three Factor Model in Explaining Tehran Stock Exchange’ s Firms Return Changes. IRANIAN ECONOMIC RESEARCH[Internet]. 2019;24(80 ):1-36. Available from: https://sid.ir/paper/365263/en

IEEE: Copy

SEYED MAHDI BARAKCHIAN, Hosein Joshaghani, seyed Ehsan Azarmsa, Saber Ahmadi Renani, and Sepehr Ekbatani, “The Application of Augmented Fama-French Three Factor Model in Explaining Tehran Stock Exchange’ s Firms Return Changes,” IRANIAN ECONOMIC RESEARCH, vol. 24, no. 80 , pp. 1–36, 2019, [Online]. Available: https://sid.ir/paper/365263/en

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