Comparing CAPM and Fama–French Factor Models

Summary

The document raises a comparison of CAPM, Fama–French three- and five-factor models, and Carhart’s four-factor model using time-series regressions on size and book-to-market portfolios. The proposed comparison examines estimated market, size, value, momentum, profitability, and investment exposures, along with model fit and a chi-squared test.

The author reports that Carhart’s model appears strongest by the measures considered, but provides no regression tables, sample details, or fuller test results. The exchange response points to prior work comparing asset-pricing models in hedge-fund performance; it does not establish which model performs best for US equity portfolios. The post is therefore a research question and preliminary result, not a complete empirical evaluation. Its conclusion depends on portfolio construction, data period, test design, and the criteria used to define model effectiveness.

Key ideas

• The post compares CAPM, Fama–French three- and five-factor models, and Carhart’s four-factor model.
• It proposes testing the models on value-weighted portfolios sorted by size and book-to-market equity.
• The author reports better fit and test statistics for Carhart’s model, without showing supporting results.
• The cited comparison concerns hedge-fund performance and does not directly resolve the US equity question.

Tags

# Comparison of the four asset pricing models


# Comparison of the four asset pricing models












I am analysing the four commonly used asset pricing models (CAPM, F3F, C4F, F5F) to determine which one is most effective.I have performed time series regressions on the 25 value weighted portfolios sorted on size and book to market equity. the coefficients for the market risk premium, smb and hml,umd,rmw, cma are examined and compared. From the regression results, the carhart four factor model seems to the most efective one (R2, coefficient, χ2 test are better than the rest of the models). Im not sure if my results is in line with literatures.

Are there any literature with regards to a comparision of the performance of the four asset pricing in US?

## Answer by python_enthusiast (score 3)

https://quant.stackexchange.com/a/35826

You can read Capocci and Hubner (2004) for a comparison of these models on hedge fund performance.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.