A Comparative Study Of Asset Pricing Models In The Egyptian Stock Market

Exploring a well-established asset pricing model not only constructs better investment strategies for investors in general,but also supports market regulators in their decisions.in order to investigate more deeply the variability of asset pricing models in the Egyptian stock market,and thus identify the determinants of stock returns in the Egyptian stock market,this paper examines whether the relevant factor models can capture the variation of returns in the Egyptian stock market,and investigates the pricing efficiency of these models in the Egyptian stock exchange,comparing the performance of these models,and using this content to provide certain reference recommendations for relevant academic research and practitioners.In today’s historical context,the epidemic has brought an unpredictable bear market to EGX,and the Egyptian stock market is in the context of the current times,and its market position cannot be ignored.At the same time,EGX is one of the first exchanges established in the Middle East.If calculated from the time the Egyptian government implemented its privatization program,the Egyptian exchange is not more than 30 years old since its reorganization,and much of the stock market infrastructure is less robust compared to the New York Stock Exchange(NYSE).However,at present,most of the construction and testing of factor models mainly focus on the research of the mature market of the US stock market,and few analyses have been conducted for the Egyptian stock market.Therefore,this paper also has certain practical significance for the study of the Egyptian stock exchange.The aim of this study is to test whether the Fama-French three-factor model,the Carhart four-factor model,and the Fama-French five-factor model the variation of returns in the Egyptian stock market,and to provide more investigation into the effect of the operating and investment factors in the Egyptian stock market.This paper selects a database from Thomson Reuters DataStream and Egypt for Information Dissemination(EGID)which represents the weekly stock trading prices of the Egyptian Stock Exchange from 2012 to June 2022,and draws conclusions using literature,and empirical and theoretical analysis.(1)Literature Research Method.Combined with the research questions,study,and sorting out the research results and views in related fields,The relevant content and research results in this field were studied and organized,Summarizing the accomplishments and deficiencies of the research,and clarifying the main directions and problems of this paper.(2)Empirical analysis.Testing Fama-French three-factor models,Carhart four-factor models,Fama-French five-factor models,how to measure model variables,portfolio construction,and The GRS test.A|ai|,A|ai|/A|ri|,A(∝i2)/A(μi2)。(3)Theoretical analysis.Relevant scholars have carried out rich theoretical models and empirical research on factor models,and through combing and summarizing relevant literature,the topic of this paper has a solid theoretical foundation.As a result,there is a more thorough understanding of the development of asset pricing models in the Egyptian stock market in this area has been achieved.Based on the above research methods,the following conclusions were obtained:(1)After testing empirical asset pricing models such as Fama-French threefactor model,Carhart four-factor model,and Fama-French five-factor model,it is found that the Fama-French five-factor model can effectively capture the changes in the average stock return of the Egyptian stock market due to β factor,size factor,value factor,momentum factor,investment factor,and profitability factor.(2)There is a pattern of size factor,value factor,momentum factor,investment factor,and profitability factor in the Egyptian stock market.(3)This paper compares the Fama-French five-factor model with the FamaFrench three-factor model and identifies the coefficients and significant characteristics of the factors shown in the paper and these factors in the regression model,and finally concludes that the size factor has the most significant explanatory power in the five-factor model in relation to the book-to-market ratio.The investment style factor CMA is more disturbed by the size of market capitalization and book-to-market ratio,and the investment style variable is subdivided to verify its significance on the excess return under the disturbance of market size,and it is found that the significance of the CMA factor increases significantly at this time,and finally it is judged that the investment style is also a significant influence on the excess return,and it also shows that the five-factor model has more explanatory power than the three-factor model,and the Fama-French five-factor model is more applicable in the Egyptian stock market.