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Estimation of Expected Return: The Fama and French Three-Factor Model Vs. The Chen, Novy-Marx and Zhang Three- Factor Model

Kilsgård, David and Wittorf, Filip (2011) BUSM65 20111
Department of Business Administration
Abstract (Swedish)
The study examines the adequacy of the measurement of the cross-section of expected stock returns on the London Stock Exchange of the recent three-factor model introduced by Chen, Novy-Marx and Zhang against that of the Fama and French three-factor model. The former model use factors in addition to the market factor based on profitability and investment while the latter model use factors based on size and book-to-market equity. The models are tested together with the CAPM on a number of anomalies based trading strategies. It is found that the three-factor models consistently outperforms the CAPM and that the model by Chen,
Novy-Marx and Zhang in general is not able to outperform the Fama and French three-factor model during the time... (More)
The study examines the adequacy of the measurement of the cross-section of expected stock returns on the London Stock Exchange of the recent three-factor model introduced by Chen, Novy-Marx and Zhang against that of the Fama and French three-factor model. The former model use factors in addition to the market factor based on profitability and investment while the latter model use factors based on size and book-to-market equity. The models are tested together with the CAPM on a number of anomalies based trading strategies. It is found that the three-factor models consistently outperforms the CAPM and that the model by Chen,
Novy-Marx and Zhang in general is not able to outperform the Fama and French three-factor model during the time period tested on the London Stock Exchange. (Less)
Please use this url to cite or link to this publication:
author
Kilsgård, David and Wittorf, Filip
supervisor
organization
course
BUSM65 20111
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Fama and French Three-Factor Model, CAPM, Asset pricing, Anomalies, Cost of Equity, Chen, Novy-Marx and Zhang.
language
English
id
2969645
date added to LUP
2012-08-09 14:38:57
date last changed
2012-08-09 14:38:57
@misc{2969645,
  abstract     = {The study examines the adequacy of the measurement of the cross-section of expected stock returns on the London Stock Exchange of the recent three-factor model introduced by Chen, Novy-Marx and Zhang against that of the Fama and French three-factor model. The former model use factors in addition to the market factor based on profitability and investment while the latter model use factors based on size and book-to-market equity. The models are tested together with the CAPM on a number of anomalies based trading strategies. It is found that the three-factor models consistently outperforms the CAPM and that the model by Chen,
Novy-Marx and Zhang in general is not able to outperform the Fama and French three-factor model during the time period tested on the London Stock Exchange.},
  author       = {Kilsgård, David and Wittorf, Filip},
  keyword      = {Fama and French Three-Factor Model,CAPM,Asset pricing,Anomalies,Cost of Equity,Chen,Novy-Marx and Zhang.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Estimation of Expected Return: The Fama and French Three-Factor Model Vs. The Chen, Novy-Marx and Zhang Three- Factor Model},
  year         = {2011},
}