Are the Fama-French factors proxying news related to GDP growth? : the Australian evidence

Annette Nguyen; Robert Faff; Philip Gharghori

doi:10.1007/s11156-009-0137-8

Are the Fama-French factors proxying news related to GDP growth? : the Australian evidence

Annette Nguyen, Robert Faff, Philip Gharghori

Research output: Contribution to journal › Article › peer-review

Abstract

Inspired by Vassalou (J Financ Econ 68:47-73, 2003), we investigate the contention that the Fama and French (J Financ Econ 33:3-56, 1993) model's ability to explain the cross sectional variation in equity returns is because the Fama-French factors are proxying for risk associated with future GDP growth in the Australian equities market. To assess the validity of Vassalou's findings, we augment the CAPM and the Fama-French model with a GDP growth factor and run system regressions of the GDP-enhanced models using the GMM approach. Our results suggest that news about future GDP growth is not priced in equity returns and that any ability that SMB and HML exhibit in explaining equity returns is not because they contain information about future GDP growth.

Original language	English
Pages (from-to)	141-158
Number of pages	18
Journal	Review of Quantitative Finance and Accounting
Volume	33
Issue number	2
DOIs	https://doi.org/10.1007/s11156-009-0137-8
Publication status	Published - 2009

Keywords

Australia
Farma, French model
equity
gross domestic product

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10.1007/s11156-009-0137-8

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title = "Are the Fama-French factors proxying news related to GDP growth? : the Australian evidence",

abstract = "Inspired by Vassalou (J Financ Econ 68:47-73, 2003), we investigate the contention that the Fama and French (J Financ Econ 33:3-56, 1993) model's ability to explain the cross sectional variation in equity returns is because the Fama-French factors are proxying for risk associated with future GDP growth in the Australian equities market. To assess the validity of Vassalou's findings, we augment the CAPM and the Fama-French model with a GDP growth factor and run system regressions of the GDP-enhanced models using the GMM approach. Our results suggest that news about future GDP growth is not priced in equity returns and that any ability that SMB and HML exhibit in explaining equity returns is not because they contain information about future GDP growth.",

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T1 - Are the Fama-French factors proxying news related to GDP growth? : the Australian evidence

AU - Nguyen, Annette

AU - Faff, Robert

AU - Gharghori, Philip

PY - 2009

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N2 - Inspired by Vassalou (J Financ Econ 68:47-73, 2003), we investigate the contention that the Fama and French (J Financ Econ 33:3-56, 1993) model's ability to explain the cross sectional variation in equity returns is because the Fama-French factors are proxying for risk associated with future GDP growth in the Australian equities market. To assess the validity of Vassalou's findings, we augment the CAPM and the Fama-French model with a GDP growth factor and run system regressions of the GDP-enhanced models using the GMM approach. Our results suggest that news about future GDP growth is not priced in equity returns and that any ability that SMB and HML exhibit in explaining equity returns is not because they contain information about future GDP growth.

AB - Inspired by Vassalou (J Financ Econ 68:47-73, 2003), we investigate the contention that the Fama and French (J Financ Econ 33:3-56, 1993) model's ability to explain the cross sectional variation in equity returns is because the Fama-French factors are proxying for risk associated with future GDP growth in the Australian equities market. To assess the validity of Vassalou's findings, we augment the CAPM and the Fama-French model with a GDP growth factor and run system regressions of the GDP-enhanced models using the GMM approach. Our results suggest that news about future GDP growth is not priced in equity returns and that any ability that SMB and HML exhibit in explaining equity returns is not because they contain information about future GDP growth.

KW - Australia

KW - Farma, French model

KW - equity

KW - gross domestic product

UR - http://handle.uws.edu.au:8081/1959.7/uws:32119

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DO - 10.1007/s11156-009-0137-8

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SP - 141

EP - 158

JO - Review of Quantitative Finance and Accounting

JF - Review of Quantitative Finance and Accounting

IS - 2

ER -

Are the Fama-French factors proxying news related to GDP growth? : the Australian evidence

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Keywords

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