1 Department of Commerce, Delhi School of Economics, Delhi, India
2 Department of Commerce, Delhi College of Arts & Commerce, Delhi, India
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The purpose of the study is to empirically examine the sectoral-specific performance of the five-factor asset pricing model comprising of 17-years’ data in the Indian stock market using the Fama–French methodology. The results highlighted the better performance of a five-factor model in the “Basic Material” and “Oil” industries. However, for the “consumer” industry, there is an existence of other risk factors which can better explain the portfolio’s excess returns. The result further demonstrates the better explanatory power of the five-factor model in explaining the portfolio excess return for the “Industrial” sector. However, the findings support the better applicability of market mode for the “financial” sector in the Indian stock market. For the “Health Care” and “Technology” industries, the addition of two more risk factors does not lead to much improvement in the model’s explanatory power. The current study evaluating the applicability of the asset pricing model will have a practical implication for portfolio managers, policymakers, researchers, and academicians in evaluating the performance of the portfolios on a sectoral basis and in determining the cost of equity in the overall cost of capital. The study will also aid the investors in their investment decision-making by helping them to identify the average stock return in different sectors.
Asset pricing model, Fama–French, sectors, risk factors, Indian stock market
JEL Classification: C22, F65, G4, G11, G12
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