International Journal of Finance & Managerial Accounting

International Journal of Finance & Managerial Accounting

Presenting a Comprehensive Model for Portfolio Risk Premium Assessment and Explaining Its Economic Consequences

Document Type : Original Article

Authors
Hamid Reza Azizi 1
Asgar Pakmaram 2
Nader Rezaei 3
Rasoul Abdi 3
1 Ph.D. Candidate in Accounting, Bonab Branch, Islamic Azad University, Bonab, Iran
2 Associate Prof. of Accounting, Bonab Branch, Islamic Azad University, Bonab, Iran
3 Assistant Prof. of Accounting, Bonab Branch, Islamic Azad University, Bonab, Iran
Abstract
This study aimed to present a model for portfolio risk premium assessment and explain its economic consequences for companies listed in Tehran stock Exchange. In order to achieve this purpose, monthly data of 150 companies listed in Tehran Stock Exchange during 2007-2017 was used. In this study, the predictive powers of Fama - French three-factor model (2011), Carhart four-factor model (2014), Fama - French five-factor model (2014), Brousseau five-factor model (2015) and Roy and Shijin six-factor model (2018 b) have been evaluated and then an optimal model has been developed for portfolio risk assessment. Findings showed that the Carhart four-factor model has higher predictive ability (48.3%) than other mentioned models in the Tehran Stock Exchange. The explanatory power and predictive ability of the model developed in the Tehran Stock Exchange was 55.7% indicating higher predictive ability respect to previous models on portfolio risk premium. Also, the economic consequences of portfolio risk premium showed that portfolio risk premium had a positive and significant effect on both absolute and relative buying and selling gap between proposed prices and stock returns synchronization.
Keywords
Portfolio Risk Premium
Fama-French Model
Carhart Model
Brousseau Model
Roy and Shijin Model
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