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International Journal of Management Science

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Validity of FAMA and French Model: Evidence from KSE-100 Index

International Journal of Management Science
Vol.1 , No. 3, Publication Date: Aug. 28, 2014, Page: 52-57

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Authors

[1]	Babar Rafi, MBA Scholar at Institute of Management Sciences Peshawar KPK, Pakistan.
[2]	Syed Sheheryar Ali Kazmi, MS (management sciences) Scholar at Abasyn University Peshawar KPK, Pakistan.
[3]	Muhammad Hashim, PhD Research Scholar Preston University Islamabad, Pakistan, Lecturer Government College of Management Sciences Peshawar, KPK, Pakistan.

Abstract

This study is carried out with an aim to test the explanatory power of three factorial Fama and French model in explaining the expected returns for the companies listed under the umbrella of KSE-100 index for the time frame of three years i.e. from 2011 to 2013. Six portfolios were constituted by intersecting size with B/M ratio of firm. The multivariate regression model was used to find the impact of three independent variables (MRP, SMB &HML) on the dependent variable (Excess Return). The intercept of four portfolios showed insignificant results which is evidence for the validity of Fama and French model for KSE-100 index for the selected time frame. Out of six portfolios three showed significant results for market risk premium, four showed for size premium and three showed for value premium confirms the existence of effect of all three independent employed factors. Contrary to the findings of (1) for FF model this study favors FF model in explaining the returns behavior of companies trading on KSE-100 index. So the findings go in partial support for FF model for companies listed on KSE-100 index.

Keywords

French Model, Expected Return, SMB, HML, KSE

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