tailieunhanh - Revisiting the Fama and French three-factor model for the case of Vietnam

This paper is to investigate the fitness of the Fama and French three-factor model in the HCMC Stock Exchange (HOSE) over the period 2007-2009. The results have proven that this model is more superior to the capital asset pricing model (CAPM) when explaining changes in the total risk premium or the return on equity in HOSE. | Researches & discussions This paper is to investigate the fitness of the Fama and French three-factor model in the HCMC Stock Exchange (HOSE) over the period 2007-2009. The results have proven that this model is more superior to the capital asset pricing model (CAPM) when explaining changes in the total risk premium or the return on equity in HOSE; yet it is not to veto that CAPM is not an effective tool to analyze the total risk premium or the return on equity, which is not only affected objectively by the market forces but also subjectively by features of listed companies such as their size and value (the book-to-market ratio [BE/ME]). The results also figure out that the market factor out of three factors produces the biggest effect on the total risk premium of a stock. In other words, although investors in HOSE have attended to features of listed companies, it is kind of humble. Their investing decisions are mainly based on ups and downs of the market. Keywords: Fama and French three-factor model, Vietnam 1. Literature review Theories on capital market have facilitated the development of the portfolio theory introduced by harry Markovitz in 1952, and risk-weighted asset pricing models. in the early time, William sharpe did propose his capital asset Pricing Model (caPM) which was first published on the Journal of Finance in 1964. caPM allows us to define the essential return on a risk-weighted asset by adding the market risk premium of such the asset to the risk-free interest rate of treasury bills. however, caPM, when tested in different markets at different periods, did not always produce expected results. Thus, numerous studies have been conducted then and many observed variables have been added to the pricing model. We can ex- * University of Economics - HCMC ** Nestle Ltd. Co. emplify the study of eugene F. Fama and Kenneth r. French in 1992. Fama and French have tried to evaluate the role of market’s beta, size, P/e ratio, financial leverage, and Be/Me