Comparison of multifactor asset pricing models in the South African stock market [2000–2016]

Abstract

The quest for parsimonious models has been a key objective in asset pricing. However, there appears to be no consensus on the most successful asset pricing strategy in the literature, especially for the South African Market. Using financial statements from January 2000 to December 2015, this article explores how market anomalies affect the performance of securities in the Johannesburg Stock Exchange’s (JSE’s) resources, industrial, and finance sectors. We investigated the efficacy of several asset pricing models and their capacity to account for market anomalies in the JSE’s resources, industrial, and financial sectors, as well as the applicability of the Fama and French five-factor model. The study used multiple regression techniques and applied stationarity and cointegration methods to ensure robust results. Results also suggest that when the FF5FM is implemented, there is statistical significance at the 10% level for the CMA in the resources sector as the value factor disappears.