Degree

Master of Science in Finance

Department

Department of Finance

School

School of Business Studies (SBS)

Date of Submission

Summer 2026

Supervisor

Dr. Mohsin Sadaqat, Assistant Professor and Head of Finance Lab, Department of Finance, Institute of Business Administration (IBA), Karachi

Project Type

Thesis

Document Type

Open Access

Pages

ix, 45

Keywords

Asset pricing factors, Book-to-market, Size, Profitability, Investment, Momentum, GDP Growth, Economic Growth, Empirical Asset Pricing

Abstract

This study examines whether the RMW and CMA factors of the Fama-French five-factor model predict future GDP growth beyond the information contained in the MKT, SMB, HML and WML factors and in standard macroeconomic indicators. It extends earlier framework to the United States, Italy, Canada and United Kingdom using samples that begin between 1991 and end in 2025. The six factors are constructed from firm-level data, and future GDP growth is regressed on past factor returns at quarterly frequency with Newey–West standard errors. The original study is also replicated on its 1978-1996 United States sample. CMA does not predict growth in any country and RMW is significant only in the United Kingdom, where its sign is negative. The MKT factor is the most consistent predictor in United States, and the predictor of growth differs across the four markets. The evidence is more consistent with mispricing than with risk-based explanation of the factor premiums and it cautions against treating factors return as reliable signals of future economic growth.

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