e-ISSN 2231-8542
ISSN 1511-3701

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Stationarity of the Fama-French Three Factor Model Factor Premiums in India

Raghuram, G.

Pertanika Journal of Tropical Agricultural Science, Volume 25, Issue 3, September 2017

Keywords: Fama-French three factor model, size premium, value premium, stationarity, stationarity tests (ADF, PP, KPSS), Granger causality

Published on: 22 Aug 2017

The monthly factor premium time series for the three factors (market, size and value) in the Fama-French three factor model in India are found to be stationary for period April 01, 1991 till March 31, 2015. The stationarity behavior for the time series is inferred from a visual examination as well as by use of the Augmented Dickey Fuller test (Said & Dickey, 1984; Said, 1991; Fuller, 2009), the Phillips-Perron test (Philips & Perron, 1987) and the KPSS test (Kwiatkowski et al., 1992). Thus. it can be inferred that the investors' return expectations from the overall market have not changed in spite of tremendous developments in the Indian economy and the transformations in the Indian stock market during the study period. It could also be noted that the Granger causality tests involving the market risk premium, size and value premium showed that size premium Granger causes value premium. This implies that at least a part of variation in stock returns due to value could possibly be explained by size.

ISSN 1511-3701

e-ISSN 2231-8542

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