Version 1
: Received: 22 September 2024 / Approved: 23 September 2024 / Online: 24 September 2024 (04:05:28 CEST)
How to cite:
Ajayi, A. S.; Arewa, A.; Omorojor, J. E.; Falaye, A. J. Risk–Return Anomalies: Evidence Based on the Co-Moment Augmented Fama–French Three-Factor Model in the Nigerian Stock Market. Preprints2024, 2024091699. https://doi.org/10.20944/preprints202409.1699.v1
Ajayi, A. S.; Arewa, A.; Omorojor, J. E.; Falaye, A. J. Risk–Return Anomalies: Evidence Based on the Co-Moment Augmented Fama–French Three-Factor Model in the Nigerian Stock Market. Preprints 2024, 2024091699. https://doi.org/10.20944/preprints202409.1699.v1
Ajayi, A. S.; Arewa, A.; Omorojor, J. E.; Falaye, A. J. Risk–Return Anomalies: Evidence Based on the Co-Moment Augmented Fama–French Three-Factor Model in the Nigerian Stock Market. Preprints2024, 2024091699. https://doi.org/10.20944/preprints202409.1699.v1
APA Style
Ajayi, A. S., Arewa, A., Omorojor, J. E., & Falaye, A. J. (2024). Risk–Return Anomalies: Evidence Based on the Co-Moment Augmented Fama–French Three-Factor Model in the Nigerian Stock Market. Preprints. https://doi.org/10.20944/preprints202409.1699.v1
Chicago/Turabian Style
Ajayi, A. S., Joy Ejighomegba Omorojor and Adebanjo Joseph Falaye. 2024 "Risk–Return Anomalies: Evidence Based on the Co-Moment Augmented Fama–French Three-Factor Model in the Nigerian Stock Market" Preprints. https://doi.org/10.20944/preprints202409.1699.v1
Abstract
In this study, we provided an empirical testability of the FF3FM against the co-moment-augmented FF3FM using the Newey–West GMM methods to account for potential endogeneity. The results showed that value risk is not significantly priced, and systematic skewness and systematic kurtosis play more important roles in explaining asset return than market and size factors. We discovered that there is much to gain in moving from the incumbent FF3FM to the co-moment-augmented FF3FM. By extending this study to Nigeria and using out-of-sample data that span across the recent COVID-19 period, the study has contributed to existing knowledge significantly. The study concludes that the co-moment-augmented FF3FM is superior to the incumbent FF3FM in pricing assets, and the anomalies associated with the return-size risk factor relationship are reduced by accounting for systematic skewness and systematic kurtosis in the FF3FM. Therefore, we recommend that investors should take a long position in size-hedged portfolios and hold systematic skewness and kurtosis as constant, and vice visa.
Keywords
long position; factor zoo; risk premium; test portfolios; patterns; hedged portfolios
Subject
Business, Economics and Management, Finance
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
