Evaluate Multifactor Asset Pricing Models , to Explain Market Anomalies, Applicable Test in the Saudi Stock Market

M. R. Mahran, Sahar; A. Heshmat, Nesma

doi:10.21608/aja.2016.17599

	Evaluate Multifactor Asset Pricing Models , to Explain Market Anomalies, Applicable Test in the Saudi Stock Market
المجلة العربية للإدارة
Article 22, Volume 36, Issue 1, June 2016, Pages 491-512 PDF (600.29 K)
Document Type: بحوث باللغة الإنجلیزیة
DOI: 10.21608/aja.2016.17599
Authors
Sahar M. R. Mahran¹; Nesma A. Heshmat²
¹Finance Department, Faculty of Economics and Administration, King Abdulaziz University, KSA, Faculty of Commerce, Ain shams University, Egypt
²Faculty of Commerce, Assiut University, Egypt
Abstract
This paper compares and evaluates the performance of eight different multifactor asset-pricing models to identify and explain Anomalies in Saudi stock market (SSM). Data set of daily stock prices and returns are collected for all companies that issue shares (152 companies) which represent all sectors in the SSM during the period from 2009 to 2013. The 25 size-BE/ME portfolios are formed by the intersection of size and BE/ME quintiles (5x5 Size-BE/ME sorts). The empirical results show that each of capital asset pricing models CAPM, the Fama-French three-factor model, the Cahart model, the four factor model of Chan and Faff four factor model and the five -factor model (Adding liquidity to four factor model) have coefficients of the factors (B_p, S_p, h_p, w_p and L ) to be significantly different from zero. Furthermore adjusted R²srange from 29% to 78% but all of them produce an intercept that is significantly different from zero for 12-16 portfolios. However, by adding leverage and test the six-factor asset pricing model, the evidence confirms the significance of this model to explain return variation with adjusted R² ranges from 39% to 83% and the intercept are not significant for 17 portfolios out of 25. Moreover, the results of testing six-factor model by adding standard deviation of residual-provide supportive evidence to the six-factor model.
Keywords
Asset Pricing; book-to-market ratio; Fama and French three-factor model; Cahart model; the four-factor model of Chan and Faff four factor model

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