Asset Pricing Tests in the Egyptian Stock Market
Posted: 22 Apr 2013 Last revised: 27 May 2017
Date Written: April 21, 2013
Abstract
This paper empirically tests and compares the applicability of five alternative asset pricing models for 55 stocks listed on the EGX-100 for the Egyptian stock market: 1) the CAPM, 2) the Fama-French three factor model, 3) the Cahart model 4) the four factor model of Chan and Faff (2005, liquidity-augmented Fama-French three factor model) 5) and the five-factor model (liquidity and momentum-augmented Fama-French three factor model). This sample is split into six portfolios sorted on size and book-to-market ratio. The tests employ time series regression of Black, Jensen and Scholes (1972). Our results show evidence that with respect to the quality of prediction, FF three factor model leads to a remarkable enhancement over the CAPM, and the other models don’t show a significant increase over the FF three factor model. GRS (1989) F-statistics accept FF three factor model and reject the appropriateness of the other models.
Keywords: Fama-French, Emerging markets, Egypt, Asset pricing models
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