Ahmad Ahmadpoor; Amir Hosein Azimiyan Moez
Volume 12, Issue 46 , October 2012, , Pages 27-42
Abstract
Studying and quantifying the relationship between risk and return and identifying factors affecting the return have always been in the interest of researchers in the field of finance. Researches have shown that multi-factor models have higher power in explaining stock returns when compared with single ...
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Studying and quantifying the relationship between risk and return and identifying factors affecting the return have always been in the interest of researchers in the field of finance. Researches have shown that multi-factor models have higher power in explaining stock returns when compared with single factor models. Fama and French (1993) presented a three-factor model including market portfolio, size and the ratio of book value to market value to describe market return. The aim of this study is to add a new variable, assets growth, to this model and make a four-factor model to have a better analysis and to make a better prediction of stock market return in Tehran Stock Exchange. To accomplish this purpose, the impact of assets growth on stock return is considered under two different models which in one of them, it is not controlled for the effects of the two variables of size and the ratio of book value to market value, and in the other one, these variables are included in our model. The data are examined over a 10-year period (2000-2010) using Eviews software, and the results show that although assets growth independently does not have any significant impact on stock return, when it is added to a three-factor model that was introduced by Fama and French , it will have a negative impact on stock market return.
