Testing the efficiency of The Fama and French Six-Factor Model (FF6) in Explaining Stock Returns - An Applied Study in The Malaysian Stock Exchange -
DOI:
https://doi.org/10.31272/jae.i152.1551Keywords:
Fama & French Six-Factor Model (FF6), Equity Returns and RisksAbstract
The models developed by Fama and French have garnered significant attention for their contribution to interpreting stock returns and providing information to investors and companies. The limitations and inadequacy of traditional models in explaining return volatility in emerging markets, particularly the Malaysian market, necessitate an evaluation of the effectiveness of multifactor models in explaining stock returns in those markets, The research aims to analyze the cross-factor portfolio returns in the Fama and French six-factor (FF6) model and beta coefficients, and to measure the impact of FF6 model factors in explaining stock returns for companies listed on the FTSE Malaysia index , The study also examines the ability of the FF6 model to explain stock returns and performs a statistical comparison between the Fama & French three-factor and five-factor models and the Fama & French six-factor model to determine the most explanatory model for stock returns using simple linear regression , To achieve the research objective, (30) companies listed on the FTSE Malaysia index were selected for a period of (8) years, extending from (1/1/2017) to (31/12/2024), with monthly and annual data .
The research reached a set of conclusions, the most prominent of which is that the results of the statistical test proved that the Fama & French six-factor model has high explanatory power when compared statistically with the Fama & French three-factor and five-factor models, as it was found to be superior to them in explaining changes in stock returns in the Malaysian market , This indicates that it is able to contain all risks and thus compensate investors, and the Profitability factor is one of the most prominent returns that affect stock returns
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