Testing of Five Factor Asset Pricing Model in India and Thailand Stock Market

Asset pricing models have emerged as a widely discussed and most debatable topic in finance literature. It is unclear whether such models hold their applicability in the emerging economies. The current study empirically examines the performance of five-factor asset pricing model using the Fama-French methodology in India and Thailand stock markets. It takes into account 17 years’ data from both the stock markets and adopts a series of tests like factor spanning, GRS, multiple regression analysis to test the applicability of a model. The empirical results found the presence of a strong market, size, value, and investment effect in both the markets. However, profitability effect was found to be strong in the Indian stock market and weak in the Thailand stock market. The article further highlights the better explanatory power of five factor model in contrast to three factor model for Indian stock market. The results reveal weaker performance of the five-factor model in Thailand stock market. The study further gives a holistic view of the applicability of the asset pricing model in both these emerging nations. The findings will further help portfolio managers in evaluating the performance of the portfolios and determining the cost of equity in the overall cost of capital. It will also aid investors in their investment decision making by helping them identify the average stock return in different nations.