Skip to main content

What does high-dimensional factor analysis tell us about risk factors in the Australian stock market?

Buy Article:

$53.17 plus tax (Refund Policy)

Abstract:

Estimates of the cost of equity are often sensitive to the specification of the linear factor model used in their construction. In this article, we use techniques developed for high-dimensional factor models to consider the identity of systematic risk factors in the Australian equities market. Our results support the use of neither the Capital Asset Pricing Model (CAPM) nor the Fama and French model, although they provide an explanation for the empirical performance of these models. Many other model specifications are also rejected. We find that a single-factor model with an equal-weighted market index is the best model for estimating the cost of equity in the Australian context.

Keywords: G10; G12; G31; arbitrage pricing theory; asset returns; capital asset pricing model; cost of equity; factor analysis; principal components

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.617699

Affiliations: Department of Economics,Macquarie University, North Ryde,NSW 2109, Australia

Publication date: April 1, 2013

More about this publication?
routledg/raef/2013/00000045/00000011/art00003
dcterms_title,dcterms_description,pub_keyword
6
5
20
40
5

Access Key

Free Content
Free content
New Content
New content
Open Access Content
Open access content
Subscribed Content
Subscribed content
Free Trial Content
Free trial content
Cookie Policy
X
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more