Does the Five-Factor Asset Pricing Model Have Sufficient Power?
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BANIK, ARINDAM GLOBAL BUSINESS REVIEWSummary: The central purpose of this article is to assess whether the newly developed five-factor model of Fama and French (2015) has sufficient power to identify the long-term abnormal performance of firms experiencing major corporate events. In order to check the robustness of the five-factor model, power of the Fama–French three-factor model (1993) has also been investigated. Simulations show that although the five-factor specification is more powerful than the three-factor specification, the extended model still lacks power. The findings further suggest that if the book-to-market factor is excluded from the five-factor model, the four-factor model documents almost similar power like the five-factor model. In addition, the power is found to be substantially reduced as the event period advances.
| Item type | Current library | Call number | Vol info | Status | Notes | Date due | Barcode | Item holds | |
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Main Library | Vol 20, No 3/ 55510583JA7 (Browse shelf(Opens below)) | Available | 55510583JA7 | |||||
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Main Library On Display | JP/GEN/Vol 20, No 3/55510583 (Browse shelf(Opens below)) | Vol 20, No 3 (10/05/2019) | Not for loan | June, 2019 | 55510583 |
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The central purpose of this article is to assess whether the newly developed five-factor model of Fama and French (2015) has sufficient power to identify the long-term abnormal performance of firms experiencing major corporate events. In order to check the robustness of the five-factor model, power of the Fama–French three-factor model (1993) has also been investigated. Simulations show that although the five-factor specification is more powerful than the three-factor specification, the extended model still lacks power. The findings further suggest that if the book-to-market factor is excluded from the five-factor model, the four-factor model documents almost similar power like the five-factor model. In addition, the power is found to be substantially reduced as the event period advances.
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