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A Comparison of New Factor Models in the Korean Stock Market
Author(s) -
Kang Hankil,
Kang Jangkoo,
Kim Wooyeon
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12274
Subject(s) - profitability index , econometrics , stock market , factor analysis , factor (programming language) , economics , portfolio , stock (firearms) , value (mathematics) , financial economics , dynamic factor , computer science , mathematics , statistics , engineering , finance , geography , context (archaeology) , archaeology , programming language , mechanical engineering
Abstract We compare the empirical performance of the Fama and French (2015) five‐factor model, the Hou et al . (2015) q‐factor model, and their variations in the Korean stock market. Among the models considered, we demonstrate that the adjusted five‐factor model, which includes the quarterly‐ rather than the yearly‐based profitability factor, best explains the size‐, value‐, investment‐, and profitability‐sorted portfolio returns. We also document supporting evidence that high‐minus‐low (HML) may not be a redundant factor in the existence of q‐factors. The adjusted five‐factor model outperforms the other factor models in digesting various anomalies in the Korean market.