Abstract
The paper aims at implementing five comparable models in Egypt, namely, 1) the CAPM, 2) the Fama-French three factor model (1993), 3) the Cahart model (1997), 4) the four factor model of Chan and Faff (2005), liquidity-augmented Fama-French three factor model) 5) and the five-factor model (liquidity and momentum-augmented Fama-French three factor model). This study follows Fama-Franch sorting methodology based on size and book-to-market ratio for 55 financial securities out of the most 100 shares in the Egyptian stock market and uses time series regression of Black, Jensen and Scholes (1972). The findings have evidence that with respect to the predictability, FF three factor model leads to a remarkable enhancement over the CAPM while the other models don’t show a significant increase over the FF three factor model.
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