Journals Information
Universal Journal of Accounting and Finance Vol. 10(2), pp. 444 - 449
DOI: 10.13189/ujaf.2022.100208
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Capturing Cross-Section of Return on Nifty 100 Companies: CAPM vs Fama-French Three-Factor Model
Deepak Sehgal 1,*, Khushboo Sagar 2
1 Deen Dayal Upadhyaya College, Delhi University, India
2 Indraprastha College for Women, Delhi University, India
ABSTRACT
In order to explain the relationship between risk and expected return, different researchers use different asset pricing models. In this research paper, we identify whether Sharpe's single factor model termed Capital Asset Pricing Model or Fama-French three-factor model better explains the expected excess return on portfolio. We used NIFTY INDEX as the proxy market portfolio. For the purpose of FF Model, we used Market Capitalization (MC) as a variable of firm size and Book to Price (B/P) as a variable of firm value. Data are taken from 1st July 2012 to 30th June 2021 for 85 companies forming part of NSE 100. We have used the same portfolio selection framework used by Fama-French (1993 and 1996). 91 days treasury bills (T-bills) have been used as risk-free proxy and taken from RBI website for the given period. We found that Fama-French three-factor model captured better results than the single factor CAPM in explaining the expected returns for all the double-sorted portfolios constructed based on MC (size factor) and B/P (value factor).
KEYWORDS
Risk, Expected Return, Capital Asset Pricing Model, Firm Size, Firm Value, FF Three-Factor Model
Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Deepak Sehgal , Khushboo Sagar , "Capturing Cross-Section of Return on Nifty 100 Companies: CAPM vs Fama-French Three-Factor Model," Universal Journal of Accounting and Finance, Vol. 10, No. 2, pp. 444 - 449, 2022. DOI: 10.13189/ujaf.2022.100208.
(b). APA Format:
Deepak Sehgal , Khushboo Sagar (2022). Capturing Cross-Section of Return on Nifty 100 Companies: CAPM vs Fama-French Three-Factor Model. Universal Journal of Accounting and Finance, 10(2), 444 - 449. DOI: 10.13189/ujaf.2022.100208.