Volume 1 • No.2 | December, 2017
The Fama-French Three-Factor Model in Vietnam - A Quantile Regression Approach
Tran Thi Tuan Anh
Abstract:
This paper aims to test the validity of the Fama and French three factor model in the Vietnam stock market by using the data of daily transactions collected from 313 stocks listed on the Ho Chi Minh Stock Exchange (HOSE) in the period from October 2011 until October 2016. Quantile regression is applied to investigate the effects of each factor in the Fama-French model over the entire distribution of excess return. The study result shows the suitability of the Fama and French three-factor model in the Vietnam’s context. The excess return of stocks listed on HOSE is positively correlated with two factors in the Fama-French model which are the market risk, the book-to-market value ratio (BE/ME) and negatively correlated with the firm size. This result is consistent with the Modern Portfolio Theory which is based on the idea that the higher risk an investor takes, the higher return he achieves. However, the magnitude of the impact of each factor in the Fama-French model is subject to the quantiles of the excess stock return. In general, at the tail quantiles (lower and upper quantiles) of the excess return distribution, the ceteris paribus, the effect of the risk premium through the beta coefficients and the value premium through BE/ME ratio is stronger than that of the middle quantiles.
JEL classification: C58 . G12 . G17 . G23 . G32.
Citation: Tran Thi Tuan Anh (2017). The Fama-French Three-Factor Model in Vietnam - A Quantile Regression Approach. Banking Technology Review, vol 2, no. 2, pp. 239-256.