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[TKB09] Multiscale Fama-French model:application to the French market
Revue Internationale avec comité de lecture : Journal The Journal of Risk Finance, vol. 10(2), pp. 179-192, 2009
motcle:
Résumé:
Purpose – The purpose of this paper is to discuss a multiscale pricing model for the French stock
market by combining wavelet analysis and Fama-French three-factor model. The objective is to
examine the relationship between stock returns and Fama-French risk factors at different time-scales.
Design/methodology/approach – Exploiting the scale separation property inherent to the
maximal overlap discrete wavelet transform, the data set are decomposed into components
associated with different time-scales. This wavelet-based decomposition scheme allows the three
Fama-French models to be tested over different investments periods.
Findings – The obtained results show that the explanatory power of the Fama-French three-factor
model becomes stronger as the wavelet scale increases. Besides, the relationship between the portfolio
returns and the risk factors (i.e. the market, size and value factors) depends significantly upon the
considered time-horizon.
Practical implications – The proposed methodology offers investors the opportunity to construct
dynamic portfolio management strategies by taking into account the multiscale nature of risk and
return. Moreover, it gives a new insight to fund rating and fund selection issues in relation to
heterogeneous investments periods.
Originality/value – The paper uses wavelets as a relatively new and powerful tool for statistical
analysis that allows a new understanding of pricing models. The paper will be of interest not only for
academics in the field of asset pricing but also for fund managers and financial market investors.
Keywords Stock markets, France, Capital asset pricing model, Investment appraisal
BibTeX
| @article { | |||
| TKB09, | |||
| title | = | "{Multiscale Fama-French model:application to the French market}", | |
| author | = | "A. Trimech and H. Kortas and S. Benammou and S. Benammou", | |
| journal | = | "The Journal of Risk Finance", | |
| year | = | 2009, | |
| volume | = | 10, | |
| number | = | 2, | |
| pages | = | "179-192", | |
| } | |||
