On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong stock market
This paper investigates the performance of four-factor asset pricing model using Hong Kong stock returns. Our four-factor model is constructed by adding a momentum factor into the Fama and French’s (J Finance Econ 33(1):3–56, 1993) three-factor model. We find that the four-factor model may explain return variation using Hong Kong data. Our results show evidence that all the four factors are significant in the model and intercepts are not significant. In addition, the reasonably high values of adjusted R 2 and the insignificance of an additional explanatory variable of residual standard deviation provide supportive evidence to the model. The robustness of the model is also checked for two effects: up- and down-market conditions and seasonal behavior.
KeywordsFama and French Four-factor model Momentum Up and down markets Seasonality
JEL ClassificationG12 G15
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