Developing and testing Q-factor for Indian equity market

By: Contributor(s): Material type: Computer fileComputer filePublication details: Ahmedabad Indian Institute of Management 2024Description: 29 p. : ill. ; includes referenceSubject(s): DDC classification:
  • SP2024/3889 SP003889
Summary: This project explores the development and testing of the Fama French 5-factor model for the Indian equity market. The primary objective is to replicate the set of factors that can effectively explain the excess returns observed in certain stocks. By leveraging data spanning the past 30 years (1st Jan 1993 – 31st Dec 2023) from the CMIE Prowess database, we aimed to construct and test the Size, Value, Momentum, Market Risk Premium, and Illiquidity factors. While the data challenges related to availability and processing were substantial, this study contributes to the existing literature by providing a comprehensive analysis of various factors that can explain the excess returns in one of the world's most dynamic emerging markets. Additionally, we aim to analyze the Illiquidity factor, which, given the large number of budding firms and penny stocks in India, seems to be quite significant in the Indian stock market context. The results have important implications for investors and market makers aiming to improve their knowledge of return characteristics in the Indian equity markets.
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Student Project Vikram Sarabhai Library Reference Students Project SP2024/3889 (Browse shelf(Opens below)) e-Book - Digital Access SP003889

Submitted by Gopesh Kumar Singh
Gaurav Ahlawat

This project explores the development and testing of the Fama French 5-factor model for the Indian equity market. The primary objective is to replicate the set of factors that can effectively explain the excess returns observed in certain stocks. By leveraging data spanning the past 30 years (1st Jan 1993 – 31st Dec 2023) from the CMIE Prowess database, we aimed to construct and test the Size, Value, Momentum, Market Risk Premium, and Illiquidity factors.

While the data challenges related to availability and processing were substantial, this study contributes to the existing literature by providing a comprehensive analysis of various factors that can explain the excess returns in one of the world's most dynamic emerging markets. Additionally, we aim to analyze the Illiquidity factor, which, given the large number of budding firms and penny stocks in India, seems to be quite significant in the Indian stock market context. The results have important implications for investors and market makers aiming to improve their knowledge of return characteristics in the Indian equity markets.

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