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Fama and French Model VS. CAPM: Procyclical Stocks

Kocarev, Ljupco LU and Budianschi, Corina LU (2013) NEKN02 20131
Department of Economics
Abstract
The purpose of this paper is to examine whether Fama and French multi-factor model have indicative explanatory power over the CAPM to the excess returns of the 55 pro-cyclical, publicly owned companies from the UK and if so then to determine which risk factors from the model are significant in explaining the excess returns.
We collect the necessary data and form portfolios according to the stocks’ excess returns sensitivity to the IPI after which a set of regressions are run in order to determine whether the variations in the portfolios can be explained by the Fama and French factors. We then run cross sectional regressions according to Fama-MacBeth.
We find that the explanatory power of the market beta and of the HML factor are not... (More)
The purpose of this paper is to examine whether Fama and French multi-factor model have indicative explanatory power over the CAPM to the excess returns of the 55 pro-cyclical, publicly owned companies from the UK and if so then to determine which risk factors from the model are significant in explaining the excess returns.
We collect the necessary data and form portfolios according to the stocks’ excess returns sensitivity to the IPI after which a set of regressions are run in order to determine whether the variations in the portfolios can be explained by the Fama and French factors. We then run cross sectional regressions according to Fama-MacBeth.
We find that the explanatory power of the market beta and of the HML factor are not strong enough. Furthermore we focus more on the GDP beta and on the size factor. Our results suggest that the SMB factor is significant and therefore serves as one of the main drivers of the procyclical companies in the UK. (Less)
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author
Kocarev, Ljupco LU and Budianschi, Corina LU
supervisor
organization
course
NEKN02 20131
year
type
H1 - Master's Degree (One Year)
subject
keywords
Industrial Production Index, CAPM, Fama-MacBeth, Fama and French, Cross-Sectional Regression, Countercyclical, Procyclical, Book-to-Market ratio, Market Capitalization, UK, crisis, business cycle, model
language
English
id
3809924
date added to LUP
2013-06-12 14:41:22
date last changed
2013-06-12 14:41:22
@misc{3809924,
  abstract     = {The purpose of this paper is to examine whether Fama and French multi-factor model have indicative explanatory power over the CAPM to the excess returns of the 55 pro-cyclical, publicly owned companies from the UK and if so then to determine which risk factors from the model are significant in explaining the excess returns.
We collect the necessary data and form portfolios according to the stocks’ excess returns sensitivity to the IPI after which a set of regressions are run in order to determine whether the variations in the portfolios can be explained by the Fama and French factors. We then run cross sectional regressions according to Fama-MacBeth.
We find that the explanatory power of the market beta and of the HML factor are not strong enough. Furthermore we focus more on the GDP beta and on the size factor. Our results suggest that the SMB factor is significant and therefore serves as one of the main drivers of the procyclical companies in the UK.},
  author       = {Kocarev, Ljupco and Budianschi, Corina},
  keyword      = {Industrial Production Index,CAPM,Fama-MacBeth,Fama and French,Cross-Sectional Regression,Countercyclical,Procyclical,Book-to-Market ratio,Market Capitalization,UK,crisis,business cycle,model},
  language     = {eng},
  note         = {Student Paper},
  title        = {Fama and French Model VS. CAPM: Procyclical Stocks},
  year         = {2013},
}