Abstract
Asset pricing models are widely applied for explaining variations in stock returns. The applicability of these models is tested on different markets for assessing different stock price anomalies. In this paper, Fama and French three-factor model and Carhart Model were applied to the KSE-100 Index, over the period of 2004 to 2019. Following the FF 3 factor methodology, we create a relatively large number of portfolios based on size, value, and momentum, whereas the existence of the momentum factor was checked through the Carhart model. The results indicate that, out of 25 portfolios, 15 were able to explain the variations in stock returns, which shows 60% efficiency of the Carhart model compared to the FF 3 factor model with 56% efficiency whereby only 14 portfolios were able to explain the variations in the stock returns. The momentum factor is thus evident from the results, whereas the value factor is found to be redundant. Our findings suggest that while projecting stock prices, financial experts and analysts should not ignore the momentum factor as by doing so there may be chances of underpricing or over-pricing of stock
Keywords
β, Market Risk, SMB, Small minus Big (Size), HML, High minus Low (Value), WML, Winners minus Losers (Momentum), FF 3 Factor, Fama & French Three Factor Model
DOI
10.54784/1990-6587.1582
Journal of Economic Literature Subject Codes
F4, F65, P3
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Shahid, M. B., Aleemi, A., & AsadUllah, M. (2024). Does Momentum Matter? Modeling Stock Returns through Fama-French and Carhart Model for Pakistan Stock Exchange. Business Review, 19(1), 24-40. Retrieved from 10.54784/1990-6587.1582
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