A Comparative Study of the Fama-French Three Factor and the Carhart Four Factor Models: Empirical Evidence from Morocco


Abstract views: 777 / PDF downloads: 768

Authors

  • Omar Tazi School of Business Administration, Al Akhawayn University, Ifrane, 53000, Morocco
  • Samir Aguenaou School of Business Administration, Al Akhawayn University, Ifrane, 53000, Morocco. https://orcid.org/0000-0002-8988-1136
  • Jawad Abrache School of Business Administration, Al Akhawayn University, Ifrane, 53000, Morocco

DOI:

https://doi.org/10.32479/ijefi.12685

Keywords:

Capital Asset Pricing Model, Fama-French Three Factor Model, Carhart Four Factor Model, Casablanca Stock Exchange

Abstract

This paper investigates the validity of the Fama-French Three Factor (FF3F) and the Carhart Four Factor (C4F) models in Morocco. Monthly returns of Casablanca Stock Exchange-listed companies are extracted from Reuters DATASTREAM over a 5 years’ period (2013-2017). Market, size, value and momentum effect-mimicking exogenous variables are formed and regressed against the returns of size and value-sorted portfolios over a total of 8 multivariate linear regressions. While the size and value effects were found to partially hold, the momentum effect was found to be insignificant. Additionally, the C4F Model did not exhibit a better explanatory power compared to the FF3F Model. It appears that both models cannot be fully relied on in order to predict cross-sections of return in the Casablanca Stock Exchange (CSE), as they both only partially hold in the latter. Ultimately, this study brings value to the existing literature by testing two widely explored asset pricing models in an emerging market where equity research-oriented inquiries are relatively scarce or basic. Even if the models do not fully hold in the Moroccan context, this study posits whether the individual anomalistic factors hold in the CSE, which might be useful for future asset pricing models augmenting endeavors.

Downloads

Download data is not yet available.

Author Biography

Samir Aguenaou, School of Business Administration, Al Akhawayn University, Ifrane, 53000, Morocco.

School of Business Administration Associate Professor

Downloads

Published

2022-01-11

How to Cite

Tazi, O., Aguenaou, S., & Abrache, J. (2022). A Comparative Study of the Fama-French Three Factor and the Carhart Four Factor Models: Empirical Evidence from Morocco. International Journal of Economics and Financial Issues, 12(1), 58–66. https://doi.org/10.32479/ijefi.12685

Issue

Section

Articles