The Fama and French Three-Factor Model - Evidence from the Swedish Stock Market

Abstract: The present study adds to the sparse published Swedish literature on the performance of the Fama and French Three-Factor model on the Swedish stock market. The ability of the model to measure the cost of equity is compared with that of the CAPM. The tests are conducted in time periods with and without financial turmoil. The Fama and French Three-Factor Model is found to provide improved explanatory power over the CAPM in both stable and unstable market conditions. Another finding is that the performance of the Fama and French Three- Factor model does not perform well during a period of financial turmoil on the Swedish market.