Risk Factors in the Norwegian Stock Market

Abstract

This study investigates which risk factors are priced in the Norwegian stock market and which asset pricing model is superior among the CAPM, the Fama- French three-factor and five-factor model and a macroeconomic model. We estimate the models using the Fama-MacBeth methodology, and further compare the models based on their intercepts, R-squared statistics and stability in results. Our findings suggest that the factor portfolios SMB and RMW, in addition to the aggregate consumption, market and term structure variables are priced in the stock market. Moreover, we find that the Fama-French three-factor model is superior in explaining the cross-section of expected returns, based on the comparison of the models. Thus, the variables and factor portfolios are likely to proxy for systematic risk that is rewarded in the stock market.