Article: Analysing asset pricing models in the Indian stock market: a comprehensive empirical study Journal: Afro-Asian Journal of Finance and Accounting (AAJFA) 2025 Vol.15 No.1 pp.1 - 18 Abstract: This study aims to analyse the asset-pricing model in India by using a comprehensive database of companies listed in the BSE 500 Index. The study covers a 20-year period from July 2000 to June 2020 and focuses on the evaluating the Fama-French three-factor and Fama-French five-factor models. To examine these asset-pricing models, ordinary least-squares multivariate regression analysis is performed for both single-sorted and double-sorted portfolios. The market proxy is selected by assessing its robustness among three potential proxies. The results suggest that return patterns are influenced by firm characteristics, specifically size, as well as fundamentals such as profitability and investments. These factors play a significant role in shaping portfolio returns. The empirical results suggest that both the Fama-French three-factor model and the Fama-French five-factor model are statistically suitable for capturing portfolio returns. However, the Fama-French five-factor model shows better performance compared to the three-factor model. Notably, the factors of size, profitability, and investment have an impact on most portfolios. These results support the adoption of Fama-French multifactor models to determine the cost of capital in the Indian stock market and emphasise the factors that fund managers, asset managers and investors should consider when constructing portfolios. Inderscience Publishers - linking academia, business and industry through research

Title: Analysing asset pricing models in the Indian stock market: a comprehensive empirical study

Authors: Saroj S. Prasad; Ashutosh Verma; Shantanu Prasad

Addresses: Department of Economics and Finance, Birla Institute of Technology and Science, Pilani – K.K. Birla Goa Campus, Goa, India ' Indian Institute of Forest Management (IIFM), Bhadbhada Rd, Nehru Nagar, Bhopal, Madhya Pradesh 462003, India ' Goa Institute of Management (GIM), Poriem, Sattari, Goa 403505, India

Abstract: This study aims to analyse the asset-pricing model in India by using a comprehensive database of companies listed in the BSE 500 Index. The study covers a 20-year period from July 2000 to June 2020 and focuses on the evaluating the Fama-French three-factor and Fama-French five-factor models. To examine these asset-pricing models, ordinary least-squares multivariate regression analysis is performed for both single-sorted and double-sorted portfolios. The market proxy is selected by assessing its robustness among three potential proxies. The results suggest that return patterns are influenced by firm characteristics, specifically size, as well as fundamentals such as profitability and investments. These factors play a significant role in shaping portfolio returns. The empirical results suggest that both the Fama-French three-factor model and the Fama-French five-factor model are statistically suitable for capturing portfolio returns. However, the Fama-French five-factor model shows better performance compared to the three-factor model. Notably, the factors of size, profitability, and investment have an impact on most portfolios. These results support the adoption of Fama-French multifactor models to determine the cost of capital in the Indian stock market and emphasise the factors that fund managers, asset managers and investors should consider when constructing portfolios.

Keywords: five-factor model; three-factor model; efficient market hypothesis; market anomalies; investments; portfolio.

DOI: 10.1504/AAJFA.2025.143509

Afro-Asian Journal of Finance and Accounting, 2025 Vol.15 No.1, pp.1 - 18

Accepted: 02 Oct 2023
Published online: 30 Dec 2024 *

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Title: Analysing asset pricing models in the Indian stock market: a comprehensive empirical study

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