Title: On the robustness of the Fama-French three-factor and the Carhart four-factor models on the Amman Stock Exchange

Authors: Mohammad Q.M. Momani

Addresses: Department of Banking and Financial Sciences, Faculty of Economics and Administrative Sciences, The Hashemite University, P.O. Box 330127, Zarqa, Jordan

Abstract: This study aims to explore the robustness of the applicability of the Fama-French and the Carhart asset pricing models on the Amman Stock Exchange (ASE) equity market. It uses data on all companies listed and traded in the ASE, over the period of 2002 to 2018. The study uses the time-series regression approach of Black et al. (1972). To estimate the models, the study applies the ordinary least squares (OLS) method. The study found that the models fail to capture the cross-section of average returns to portfolios sorted on size/book-to-market as well as size/momentum. The ability of the Carhart model in describing the returns to size/book-to-market portfolios is similar to that of the Fama-French model; however, the model better describes the returns to size/momentum portfolios. Unlike Al-Mwalla's (2012) conclusion, this study suggests using the Carhart model in practical applications that require the estimation of the ASE equity market returns.

Keywords: asset pricing; Fama-French three-factor; Carhart four-factor; Amman Stock Exchange; ASE; Jordan.

DOI: 10.1504/AAJFA.2021.111808

Afro-Asian Journal of Finance and Accounting, 2021 Vol.11 No.1, pp.64 - 80

Received: 16 Apr 2019
Accepted: 02 Dec 2019
Published online: 15 Dec 2020 *

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