Is the Fama French Five Factor model still working?
Abstract
Many different asset pricing models have been developed over the years, in order
to understand how the risk of an investment should affect the expected return. None
of the models developed seem to be completely exempt from criticism, but many
economists prefer the Fama French Five factor model. The aim of this paper is to
verify if the five factors of the model are still relevant and significant nowadays, in
order to explain the expected return of an investment. At the beginning of the study,
a lot of focus has been addressed to the validity of the value factor. Contrary to the
initial expectations, our results show that this factor is still relevant to explain the
average expected return. On the contrary there are other factors which may need
further analysis and of which validity is questionable.
KEYWORDS: Asset pricing, stock returns, Fama-French 5 factor model, factors,
risk, momentum factor, beta.
Description
Masteroppgave(MSc) in Master of Science in Business, Accounting and Business Control - Handelshøyskolen BI, 2020