Moreover low book-to-market equity stocks outperformed high to bookto-market equity stocks. The study recommends that cost of capital estimates would be more accurate using a multiple factor model such as the Carhart four-factor model rather than the Fama-French Three Factor Model.
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factor model and Carhart´s four-factor model, to see which of these models that can explain portfolio excess returns best on the Swedish stock market. This thesis will tempt to validate the three and four-factor models because of the limited amount of research done on the Swedish stock market. Kittens for sale in wisconsin
and French (1996) find that the three-factor model fails to capture momentum, reinforcing further research on this anomaly. Carhart (1997) proposes the addition of a momentum factor (WMLt) to the Fama and French three-factor model. In this paper, this model shall be referred to as the Carhart four-factor model or simply the four-factor model. This motivates us to extend the search for such a model in a number of different ways. First, we consider whether the addition of a “momentum” or “Carhart” factor can rescue the basic FF model. We examine if any of the alternative specifications of the factors examined by MMS in association with a Carhart (1997) factor improves on the Table O-5: Fama-French-Carhart Factor Model and the -Factor: Hansen-Jagannathan Distance This table presents the Hansen-Jagannathan (HJ) distance of the Fama-French-Carhart four factor model as a baseline and the percent reduction in the HJ distance from the addition of a second factor, . ing semiparametric methods. We apply the technique to the three-factor Fama-French model, Carhart™s four-factor extension of it adding a momentum factor, and a –ve-factor extension adding an own-volatility factor. We –nd that momentum and own-volatility factors are at least