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A comparison of Asset Pricing Models in the Norwegian Stock Market

Lønø, Bjørn Erik; Svendsen, Christoffer Erevik
Master thesis
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2285357.pdf (1.755Mb)
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http://hdl.handle.net/11250/2621449
Utgivelsesdato
2019
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Samlinger
  • Master of Science [1116]
Sammendrag
Abstract

This master thesis tests and evaluates different asset pricing models for the

Norwegian stock market. The models are made to explain the cross-section of

expected stock returns, and we apply them to real-world data and compare their

performance.

This paper applies four models to the Norwegian stock market; CAPM, Fama and

French Three-Factor Model (FF3), Fama and French Five-Factor Model (FF5),

and the Carhart Four-Factor Model (C4). We evaluate their performance using the

Fama and MacBeth (1973) procedure with both time-series and cross-sectional

regressions and compare the models based on intercept analysis, explanatory

power, and stability in results. The purpose of the comparison is to find a superior

model that should be applied when analysing the Norwegian stock market.

The Fama-French three-factor model is the most preferred amongst our models.

We find no evidence that adding more factors, either the Momentum or the RMW

and CMA factor, explain the cross-section of expected returns better than the

three-factor model. Further, all models yield a significant intercept which entails

that the models are missing priced risk factors for the Norwegian stock market.

Other models with different risk factors should, therefore, be considered when

conduction analysis in the Norwegian market. However, we find that the Fama-

French three-factor model is a relatively stable and applicable model.
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Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2019
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