Paper Title
Actual Market Return and the Two Famous Models of Asset Pricing
Abstract
This study focuses on two main classes of asset pricing models that achieved enormous attention from economists. The first class is the “Capital-Asset Pricing Model” known as the CAPM model in 1964, William Sharpe's nowadays, and the second main class of models is the Fama-French 3-factor model, Fama & French in 1993 “Common-risk-factors on returns of stocks & bonds”. The aim of this study is testing the CAPM and Fama-French-Three-Factor models and compares their predictions/results to the actual market return to check which formula produces more precise results if any. The data of the study is taken from https://finance.yahoo.com/ “Yahoo Finance-Stock Market Live, Quotes, Business and Finance News”. To achieve the purposes of the study, formulas will be solved and applied using Microsoft Excel software. The result of the study data showed no significant difference in the expected average returns (2017/2018) achieved by both CAPM and Three-Factor-Model. And the results showed significant difference in the actual market average return (2017/2018) with the all sample companies on comparison with expected average returns results for both models (2017/2018) CAPM and Fama French Three Factors.
Keywords – CAPM, Fama & French Three-Factor Model, Market Returns.