Asset pricing: analysis of multi-factor models using Fama and French factors

Abstract

The present paper considers the five factors proposed by Fama and French (1992, 2015), plus the factor proposed by Carhartt (1997): market premium, size, book-to-market ratio, profitabil- ity, investment, and momentum. The aim of this thesis is to analyze the behavior of these factors and test the ability to explain cross-sectional variations in the data. Other authors have done the similar analysis with different databases, such as, Asgharian & Hansson (2002) with Swedish data, and Beltratti & Di Tria (2002) with Italian market data, both with the same results as this paper. The data used for this purpose is monthly European market from July 1990 to March 2021: twenty-five portfolios of European returns formed on size and book-to-market value and European based six returns of factors. Using Fama & MacBeth (1973) methodology and OLS regression, results show rarely significant and different from zero coefficients in the cross-sec- tional analysis for the six factors, even if sporadically some coefficients are positive and different from zero.