Four factor model in Indian equities market

Abstract

We compute the Fama-French and momentum factor returns for the Indian equity market or the 1993-2012 period using data from CMIE Prowess. We di er from the previous studies n several signi cant ways. First, we cover a greater number of rms relative to the existing tudies. Second, we exclude illiquid rms to ensure that the portfolios are investible. Third, we have classi ed rms into small and big using more appropriate cut-o considering the dis- ribution of rm size. Fourth, as there are several instances of vanishing of public companies n India, we have computed the returns with a correction for survival bias. During the period, he average annual return of the momentum factor was 21.2%; the average annual return on he value portfolio (HML or VMG) was 6%; that of the size factor (SMB) was -0.8%; and the verage annual excess return on the market factor (Rm-Rf) was 3.5%. The daily and monthly ime series of the four factor returns and the returns of the underlying portfolios are available