Implement Fama And French And Capital Asset Pricing Models In Saudi Arabia Stock Market

This paper applies two of the famous asset pricing models in finance (Capital Assent Pricing model and Fama and French 1993 three factor model) in an emerging market with an Islamic Culture: Saudi Arabia Market (Tadwal), Generalized Methods of Moments and t Test statistical techniques were used to f...

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Bibliographic Details
Published in:Journal of applied business research 2015, Vol.31 (3), p.953-953
Main Authors: Aldaarmi, Abdulaziz, Abbodb, Maysam, Salameh, Hussein
Format: Article
Language:English
Subjects:
Asset pricing
Capital assets
Capital markets
CAPM
Default
Efficiency
Emerging markets
France
Islamic culture
Islamic life & ethics
Literature reviews
Operations research
Pricing
Return on investment
Saudi Arabia
Securities markets
Stock exchange
Stock exchanges
Stock prices
Studies
Variables
Citations: Items that cite this one
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Summary:This paper applies two of the famous asset pricing models in finance (Capital Assent Pricing model and Fama and French 1993 three factor model) in an emerging market with an Islamic Culture: Saudi Arabia Market (Tadwal), Generalized Methods of Moments and t Test statistical techniques were used to find the coefficients and to compare between real and expected returns.The results show that Fama and French 1993 model has more explanatory power and do a better job in explaining the changes in stock returns than the CAPM, and those developed market models can be applicable in emerging markets like Saudi Arabia. CAPM model has a clear evidence for its applicability while Fama and French Model has a clear evidence for the market return but not a clear evidence for the size and book to market return. Finally the results show that we can predict the stock prices by using any of those two models which means that the Saudi Arabia Market is inefficient pricing Market.The modernity and low number of companies has a big effect on the results, in addition the strong purchasing power and strong cash availability.Finally we recommend to appply more modern pricing models at the micro and macro level and add variables consistent with the Islamic Culture of Saudi Arabia.
ISSN:0892-7626
2157-8834
DOI:10.19030/jabr.v31i3.9228