Evaluating Modern Asset Pricing Models in the Norwegian Stock Market

Abstract

This master thesis evaluates three different asset pricing models in the Norwegian stock market. We chose to evaluate the CAPM, Fama- French three factor model and the q-factor model. This is the first time the q-factor model is tested in the Norwegian market. We study the effectiveness of the three models accuracy in explaining cross-sectional returns in the Norwegian market in the last 20 years. We apply the models to real-world data and evaluate their performance based on cross-sectional regressions, intercept analysis and explanatory power. We find the q-factor model to perform best in terms of explanatory power and intercept analysis. Hence, a new asset pricing model should be considered for practitioners when conducting analysis on the Norwegian stock market.