Testing the Fama-French Three-factor Model for Banking Stocks in the Indian Stock Market Using Panel

The Fama-French three-factor model, which extends the CAPM by integrating the size and book-to-market (BTM) effects, is one of the most prominent models in asset pricing theory. The three-factor model has much more explanatory power than the CAPM, according to several studies.

The current study adds to the literature by proposing fixed-effects panel regression analysis of stock performance on beta, log of total assets, and book-to-market ratio, controlling for stock-specific and period-specific effects as an alternative to the classic Fama-French methodology, which involves comparing the rates of return of a portfolio consisting of high BTM stocks with a portfolio consisting of low BTM stocks and comparing the rates of return of a portfolio consisting of high BTM stocks with the rates a stock portfolio made of of huge corporations The three-factor model is tested using a sample of nine large-cap companies from the banking industry traded on the National Stock Exchange (NSE) of India from April 1, 2008 to March 31, 2016.

The study's findings show that the BTM ratio has a considerable negative influence on mean returns, with no significant beta or size impacts. These findings differ from the majority of previous studies in the literature, which claim that stocks with a high BTM ratio have higher returns than stocks with a low BTM ratio; however, the study's findings do partially align with the literature of the three-factor model, in that the BTM factor was generally found to be dominant over the beta and other factors.

Please see the link :- https://globalpresshub.com/index.php/AJEFM/article/view/791