The Fama-French Five-Factor Asset Pricing Model for the Swedish Stock Market
Abstract: The purpose of this thesis is to investigate how well does the five-factor Fama-French model perform in the Swedish stock market. Fama and French (2015) develop the five-factor model that augments the Fama and French (1993) three-factor model of market return, size and value with two new factors: operating profitability and investment. I examine whether the two main findings of their paper drawn from the US sample also holds true for the Swedish stock market. Namely, they find that the five-factor model describes excess stock returns better than the three-factor model. Also, they conclude that the value factor becomes redundant once profitability and investment factors are added to the model. After implementing a similar analysis on all stocks traded in the Swedish stock market from July 1991 to December 2014 I find that the five-factor model indeed performs better at explaining the variance in average stock returns. However, I do not find conclusive evidence that the value factor becomes redundant once profitability and investment factors are added to the three-factor model for the Swedish stock market.
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