An Empirical Analysis of Asset Pricing Models in Australia
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Zheng, Xiaoxiao
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Frijns, Bart
Huynh, Thanh
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Auckland University of Technology
Abstract
Fama and French (2015) develop a five-factor model with the market risk, size, book-to-market, profitability and investment factors, and find that this model has stronger explanatory power than the three-factor model of Fama and French (1993) in the U.S. markets. In addition, they find that, once the profitability and investment factors are controlled for, the book-to-market factor becomes redundant in their sample. They suggest that this redundancy might be specific to the U.S. markets. In this thesis, I analyse the performance of alternative asset pricing models in the Australian market. My findings confirm the power of the five-factor model. Furthermore, consistent with Fama and French’s conjecture, the book-to-market factor is not redundant in the Australian market.
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Asset pricing, Five-factor model, Australia, Book-to-market