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MODELING CAPITAL ASSET RETURNS ON THE SWEDISH STOCK MARKET - An evaluation of Fama French’s Five Factor Model against its predecessors

Bergram, Kristoffer LU and Göransson, Ludvig LU (2019) STAH11 20182
Department of Statistics
Abstract
This thesis compared the explanatory rate of three asset pricing models related to excess returns on the Swedish stock market. A more granular evaluation of each model’s factors was also conducted. A random sample of 90 companies was drawn from the Stockholm Stock Exchange (N = 371) using a Blomberg terminal. From this sample, 22 value-weighted portfolios were constructed to create three asset pricing models known as the Fama French Three Factor model, Carhart Four Factor Model and the Fama French Five Factor model. Out of these 22 portfolios, 18 were evaluated using each of the three models. Specific model assumptions such as VIF-values, time dependence and the normality of the standardized residuals were assessed on the individual... (More)
This thesis compared the explanatory rate of three asset pricing models related to excess returns on the Swedish stock market. A more granular evaluation of each model’s factors was also conducted. A random sample of 90 companies was drawn from the Stockholm Stock Exchange (N = 371) using a Blomberg terminal. From this sample, 22 value-weighted portfolios were constructed to create three asset pricing models known as the Fama French Three Factor model, Carhart Four Factor Model and the Fama French Five Factor model. Out of these 22 portfolios, 18 were evaluated using each of the three models. Specific model assumptions such as VIF-values, time dependence and the normality of the standardized residuals were assessed on the individual portfolios and variables of each model. The results concluded that the Fama French Five Factor model outperformed both the Fama French Three Factor model and the Carhart Four Factor model with a higher R squared on average. The most consistent factor of the models was the SMB of the Fama French Five Factor model. (Less)
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author
Bergram, Kristoffer LU and Göransson, Ludvig LU
supervisor
organization
course
STAH11 20182
year
type
M2 - Bachelor Degree
subject
keywords
asset pricing modeling, time series regression, statistics, Fama French Five Factor model, Carhart Four Factor model, Fama French Three Factor model, Swedish stock market, portfolio theory, behavioral economics
language
English
id
8969930
date added to LUP
2019-03-29 09:00:40
date last changed
2019-03-29 09:00:40
@misc{8969930,
  abstract     = {{This thesis compared the explanatory rate of three asset pricing models related to excess returns on the Swedish stock market. A more granular evaluation of each model’s factors was also conducted. A random sample of 90 companies was drawn from the Stockholm Stock Exchange (N = 371) using a Blomberg terminal. From this sample, 22 value-weighted portfolios were constructed to create three asset pricing models known as the Fama French Three Factor model, Carhart Four Factor Model and the Fama French Five Factor model. Out of these 22 portfolios, 18 were evaluated using each of the three models. Specific model assumptions such as VIF-values, time dependence and the normality of the standardized residuals were assessed on the individual portfolios and variables of each model. The results concluded that the Fama French Five Factor model outperformed both the Fama French Three Factor model and the Carhart Four Factor model with a higher R squared on average. The most consistent factor of the models was the SMB of the Fama French Five Factor model.}},
  author       = {{Bergram, Kristoffer and Göransson, Ludvig}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{MODELING CAPITAL ASSET RETURNS ON THE SWEDISH STOCK MARKET - An evaluation of Fama French’s Five Factor Model against its predecessors}},
  year         = {{2019}},
}