The four-factor model and stock returns: evidence from Sri Lanka Online publication date: Wed, 15-Mar-2017
by Amal Peter Abeysekera; Pulukkuttige Don Nimal
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 7, No. 1, 2017
Abstract: There have been numerous studies that have attempted to explain the cross-sectional variation in average returns in developed and emerging markets. However, there is a dearth in the published evidence of research that has looked at frontier markets regarding this aspect. Sri Lanka is considered to be a frontier market and hence the objective of this study is to test the ability of the Carhart four-factor model to explain the variation in the cross-section of average stock returns in the Colombo Stock Exchange (CSE) and to evaluate it in comparison to the capital asset pricing model (CAPM) and the Fama and French three-factor model. The study finds that the four-factor model, incorporating the market factor, size factor, value factor and momentum factor, provides a satisfactory explanation of the variation in the cross-section of average stock returns in the CSE. Further, it is found that the four-factor model performs better than the CAPM and the three-factor model.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the Afro-Asian J. of Finance and Accounting (AAJFA):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com