TITLE:
The Cross-Section of Stock Returns: An Application of Fama-French Approach to Nepal
AUTHORS:
Sabin Bikram Panta, Niranjan Phuyal, Rajesh Sharma, Gautam Vora
KEYWORDS:
Nepal Stock Exchange, Cross-Sectional Asset Pricing, CAPM, Fama-French Three-Factor Model
JOURNAL NAME:
Modern Economy,
Vol.7 No.2,
February
26,
2016
ABSTRACT: We study a sample of
the companies listed on the Nepal Stock Exchange (NEPSE) for the predictors of
the returns on these companies’ stocks. Using the sample period of December
2004 through July 2011, we study the sample of 134 companies out of a universe
of 176 companies. We construct the marketwide indicators of Fama-French
approach: capitalization (Small and Big) and book-to-market ratio (Low, Middle
and High). The standard CAPM and three-factor regression equations are
estimated. The typical Fama and French results are not obtained. At best, the
results are mixed. They show that Nepalese capital market provides excess
return for big value-stocks and lower excess return for small growth-stocks. It
is possible that this result is attributable to the biases in the listed
corporate sector. Financial sector companies dominate the listing on the Nepal
Stock Exchange. Because of the impossibility of elimination financial companies
from the sample, it is impossible to be categorical about this attribution. We
recommend that the study be replicated after a few years when either more
companies become available or longer time series of data becomes available.