Iranian Journal of Finance

Investigation the strength of Five-factor model of Fama and French (2015) in describing fluctuations in stock returns

Document Type : Original Article

Authors

Roya mirzaei 1
Amir Abbas Sahebgharani 2
Nazanin Hashemi 3

1 Shahid Beheshti University

2 Allame Tabatabaee University

3 Faculty member in accountancy of Islamic Azad University- South Tehran Branch

https://doi.org/10.22034/ijf.2017.59778
Abstract
Prediction of stock returns is always one of the most important discussions of financial markets, which has led to introducing of various models to pricing financial assets, one of the most important of these models is to measure the surplus returns by Fama &  French model was introduced in the form of a 5-factor model which, in spite of its satisfaction with the model, is still in conflict with many anomalies in the market, which the model can not explain, in the same way The purpose of this paper is to examine the strength of Five Factor Model of Fama & French (2015) for explaining volatility as a market anomaly.The sample consists of 168 companies listed in Tehran Stock Exchange. Portfolio Analysis is the approach of this paper for testing explanatory power of the Five Factor Model. Results show that profitability and investment factors couldn’t explain excess returns. This conclusion contradicts the model of Fama and French (2016).

Keywords

excess return
Anomaly
volatility
Five Factor model of Fama and French
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Iranian Journal of Finance
Volume 1, Issue 2
Autumn 2017
Pages 105-119

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