Testing the Validity of Fama French Three and Five Factor Models: An Application On BIST 100 Index

Ayşegül Ertuğrul

Makale detayları

Testing the Validity of Fama French Three and Five Factor Models: An Application On BIST 100 Index

Yazarlar:

Ayşegül Ertuğrul

Yayıncı:

Çanakkale Onsekiz Mart University

Ana Başlıklar:

Finansal Ekonomi

Dergi:

Yönetim Bilimleri Dergisi Vol.22 Issue 52, pp.324-338

Belge Tipi:

Makale

Yayın Tarihi:

3/2024

Belge Dili:

Türkçe

Document ID (Org No.):

2001313524

pISSN:

1304-5318

Anahtar kelimeler:

Özet:

 Stock investments continue to maintain their importance with the deepening of financial markets. Determining the level of returns to be obtained from investments has been the focus of all investors. Investors aim to obtain a return at least above the risk-free interest rate. In line with this goal, many models on asset pricing have been developed in the finance literature. In 2015, Fama and French tried to explain the firm risk premium, which they tried to explain with three factors, by adding two more factors profitability and investment. This study aims to test the validity of Fama and French three-factor and Fama and French five-factor models in Borsa Istanbul and to select the best model. For this purpose, the quarterly data of 65 enterprises operating in the BIST 100 index and not included in the financial sector for the years 2013-2022 were used. Panel regression was used as the analysis method, unit root tests were performed and stationarity was ensured. Then, the best model was selected and it was concluded that both FF3F Fama-French Three Factor and FF5F Fama-French Five Factor models are valid, but their explanatory power is low and almost equal.Since the explanatory power of the models are very close to each other, it is not possible to prove that the FF5F model is superior. Moreover, for the FF3F model, a significant positive relationship was found between the firm risk premium and PRP market risk premium and SMB firm size, while a negative relationship was found between HML DDPD ratio. For the FF5F model, it is concluded that there is a positive relationship between both RMW profitability and CMA investment variables and firm risk premium. In both models, the variable with the highest impact level was found to be HML.

 Stock investments continue to maintain their importance with the deepening of financial markets. Determining the level of returns to be obtained from investments has been the focus of all investors. Investors aim to obtain a return at least above the risk-free interest rate. In line with this goal, many models on asset pricing have been developed in the finance literature. In 2015, Fama and French tried to explain the firm risk premium, which they tried to explain with three factors, by adding two more factors profitability and investment. This study aims to test the validity of Fama and French three-factor and Fama and French five-factor models in Borsa Istanbul and to select the best model. For this purpose, the quarterly data of 65 enterprises operating in the BIST 100 index and not included in the financial sector for the years 2013-2022 were used. Panel regression was used as the analysis method, unit root tests were performed and stationarity was ensured. Then, the best model was selected and it was concluded that both FF3F Fama-French Three Factor and FF5F Fama-French Five Factor models are valid, but their explanatory power is low and almost equal.Since the explanatory power of the models are very close to each other, it is not possible to prove that the FF5F model is superior. Moreover, for the FF3F model, a significant positive relationship was found between the firm risk premium and PRP market risk premium and SMB firm size, while a negative relationship was found between HML DDPD ratio. For the FF5F model, it is concluded that there is a positive relationship between both RMW profitability and CMA investment variables and firm risk premium. In both models, the variable with the highest impact level was found to be HML.

 Stock investments continue to maintain their importance with the deepening of financial markets. Determining the level of returns to be obtained from investments has been the focus of all investors. Investors aim to obtain a return at least above the risk-free interest rate. In line with this goal, many models on asset pricing have been developed in the finance literature. In 2015, Fama and French tried to explain the firm risk premium, which they tried to explain with three factors, by adding two more factors profitability and investment. This study aims to test the validity of Fama and French three-factor and Fama and French five-factor models in Borsa Istanbul and to select the best model. For this purpose, the quarterly data of 65 enterprises operating in the BIST 100 index and not included in the financial sector for the years 2013-2022 were used. Panel regression was used as the analysis method, unit root tests were performed and stationarity was ensured. Then, the best model was selected and it was concluded that both FF3F Fama-French Three Factor and FF5F Fama-French Five Factor models are valid, but their explanatory power is low and almost equal.Since the explanatory power of the models are very close to each other, it is not possible to prove that the FF5F model is superior. Moreover, for the FF3F model, a significant positive relationship was found between the firm risk premium and PRP market risk premium and SMB firm size, while a negative relationship was found between HML DDPD ratio. For the FF5F model, it is concluded that there is a positive relationship between both RMW profitability and CMA investment variables and firm risk premium. In both models, the variable with the highest impact level was found to be HML.

 Hisse senedi yatırımları finansal piyasaların derinlik kazanmasıyla birlikte önemini korumaya devam etmektedir. Fama ve French 2015 yılında üç faktör ile açıklamaya çalıştığı firma risk primini, iki faktör karlılık ve yatırım daha ekleyerek açıklamaya çalışmıştır. Bu çalışmada Fama ve French üç faktör ve Fama ve French beş faktör modellerinin Borsa İstanbulda geçerliliği sınamak ve en iyi model seçimi yapılması amaçlanmıştır. Bu amaç doğrultusunda ise, BIST 100 endeksinde faaliyet gösteren ve mali sektörde yer almayan 65 adet işletmenin 2013-2022 yıllarına ait çeyrek dönem verileri kullanılmıştır. Analiz yöntemi olarak panel regresyon kullanılmış ve elde edilen bulgularda, hem FF3F Fama- French Üç Faktör  hem FF5F Fama- French Beş Faktör modellerinin geçerli olduğu ancak açıklama güçlerinin düşük ve hemen hemen eşit düzeyde olduğu sonucuna ulaşılmıştır. Modellerin açıklama güçlerinin birbirine çok yakın olması dolayısıyla FF5F modelinin daha üstün olduğu kanıtına ulaşılamamıştır. Ayrıca FF3F modeli için firma risk primi ile PRP piyasa risk primi ve SMB firma büyüklüğü arasında anlamlı pozitif bir ilişki, HML DDPD oranı arasında negatif bir ilişki bulunmuştur. FF5F modeli için ise hem RMW karlılık hem de CMA yatırım değişkenleri ile firma risk primi arasında pozitif bir ilişki olduğu sonucuna varılmıştır. Her iki modelde de en yüksek etki düzeyine sahip olan değişkenin HML olduğu görülmüştür.

Makale detayları

Testing the Validity of Fama French Three and Five Factor Models: An Application On BIST 100 Index

Yazarlar:

Ayşegül Ertuğrul

Yayıncı:

Çanakkale Onsekiz Mart University

Ana Başlıklar:

Finansal Ekonomi

Dergi:

Yönetim Bilimleri Dergisi Vol.22 Issue 52, pp.324-338

Belge Tipi:

Makale

Yayın Tarihi:

3/2024

Belge Dili:

Türkçe

Document ID (Org No.):

2001313524

pISSN:

1304-5318

Fama and French Three Factor Model

Fama and French Five Factor Model

Asset Pricing

Panel Regression AnalysisFama ve French Üç Faktör Modeli

Fama ve French Beş Faktör Modeli

Varlık Fiyatlama

Panel Regresyon Analizi

Sayı

Makale detayları

Yazarlar: Ayşegül Ertuğrul

Yayıncı: Çanakkale Onsekiz Mart University

Ana Başlıklar: Finansal Ekonomi

Dergi: Yönetim Bilimleri Dergisi Vol.22 Issue 52, pp.324-338

Belge Tipi: Makale

Yayın Tarihi: 3/2024

Belge Dili: Türkçe

Document ID (Org No.): 2001313524

pISSN: 1304-5318

Sayı

Yazarlar:

Ayşegül Ertuğrul

Yayıncı:

Çanakkale Onsekiz Mart University

Ana Başlıklar:

Finansal Ekonomi

Dergi:

Yönetim Bilimleri Dergisi Vol.22 Issue 52, pp.324-338

Belge Tipi:

Makale

Yayın Tarihi:

3/2024

Belge Dili:

Türkçe

Document ID (Org No.):

2001313524

pISSN:

1304-5318