Academic Journals Database
Disseminating quality controlled scientific knowledge

TEST OF THE FAMA-FRENCH THREE-FACTOR MODEL IN CROATIA

ADD TO MY LIST
 
Author(s): Denis Dolinar

Journal: UTMS Journal of Economics
ISSN 1857-6974

Volume: 4;
Issue: 2;
Start page: 101;
Date: 2013;
Original page

Keywords: Fama French | three factor model | systematic risk | asset pricing model | risk-return | Croatian stock market

ABSTRACT
This paper empirically examines the Fama-French three-factor model of stock returns for Croatia. In contrast to the results of Fama and French (1993) for the U.S. stock market, their three-factor model did not show so successful when describing risk-return relation of Croatian stocks. This paper shows that the Fama-French three-factor model is a valid pricing model, since it explains cross-section of average returns on stocks in Croatia, and that has a greater explanatory power in comparison to the CAPM. In the case of Croatian stock market, size and B/M factors are not always significant, but on average they individually have certain marginal explanatory power. Namely, they capture small common variation in returns that is missed by the market factor. Moreover, B/M factor has shown as a stronger common risk proxy in relation to size factor. Finally, there is still a large portion of common variation in stock return that may be explained by other factors. Because emerging capital markets bear their own specificity, special care needs to be taken when applying existing or developing new pricing models.
Save time & money - Smart Internet Solutions      Why do you need a reservation system?