Multiscale Carhart Four-Factor Pricing Model: Application to the French Market
This paper focuses on a methodology aimed at analyzing the Carhart multifactor model (Carhart, 1997) over various time horizons in the French Stock Market. The suggested approach exploits the decomposition scheme inherent to the wavelet-based Multiresolution Analysis, allowing one to investigate the...
Gespeichert in:
Veröffentlicht in: | The ICFAI journal of financial risk management 2009-06, Vol.6 (2), p.61 |
---|---|
Hauptverfasser: | , |
Format: | Artikel |
Sprache: | eng |
Schlagworte: | |
Online-Zugang: | Volltext |
Tags: |
Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
|
Zusammenfassung: | This paper focuses on a methodology aimed at analyzing the Carhart multifactor model (Carhart, 1997) over various time horizons in the French Stock Market. The suggested approach exploits the decomposition scheme inherent to the wavelet-based Multiresolution Analysis, allowing one to investigate the time scale relationships between stock returns and risk factors. The empirical results show that the explanatory power of the wavelet-based four factor model is scale-sensitive. The market factor is highly significant over the range of time scales and positively effects intermediate and long-term investment horizons. Besides, the size factor is found to be negative for the portfolios constructed by small capitalization assets. The size risk also becomes negative for big portfolios at the largest time scale. The value proxy HML, which is rejected for the unitary (single) scale model is, however, significant over a large array of resolution levels (investment periods). Finally, it is found that the momentum factor, within the multiscale framework, has a significant impact on the expected stock returns. [PUBLICATION ABSTRACT] |
---|---|
ISSN: | 0972-916X |