An application of factor pricing models to the Polish stock market

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Authors

Zaremba, Adam
Czapkiewicz, Anna
Szczygielski, Jan Jakub
Kaganov, Vitaly

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Routledge

Abstract

We evaluate and compare the performance of four popular factor pricing models: the capital asset pricing model, the Fama and French three-factor model, Carhart’s four-factor model, and the five-factor model of Fama and French. We aim to establish which of these models is most applicable in the Polish stock market. To do so, we employ a battery of tests—cross-sectional regressions, examination of one-way and two-way sorted portfolios, tests of monotonic relationships, and factor redundancy tests—and apply them to a sample of more than 1100 stocks for the years 2000–2018. The results indicate that the four-factor model outperforms the other models; it has the greatest explanatory ability for cross-sectional returns and is therefore well-suited for asset pricing in Poland.

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Keywords

Asset growth, Asset pricing, Equity anomalies, Factor models, Momentum, Poland, Polish stock market, Profitability, Size, Cross-section of returns, Value

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Citation

Adam Zaremba, Anna Czapkiewicz, Jan Jakub Szczygielski & Vitaly Kaganov (2019) An Application of Factor Pricing Models to the Polish Stock Market, Emerging Markets Finance and Trade, 55:9, 2039-2056, DOI: 10.1080/1540496X.2018.1517042.