The Integration of Multi-Factor Model of Capital Asset Pricing and Penalty Function for Stock Return Evaluation
Journal Title: Communications in Nonlinear Analysis - Year 2019, Vol 4, Issue 2
Abstract
One of the main concerns of investors is the evaluation of the return on investment, which is conducted using various models such as the CAPM (single-factor model), Fama-French three/five-factor models, and Roy and Shijin’s six-factor model and other models known as multi-factor models. Despite the widespread use of these models, their major drawbacks include sensitivity to unexpected changes, sudden shocks, high turbulence of price bubble, and so on. To eliminate such negatives, the multi-factor model using the penalty function method is used, in which, instead of averaging, the optimization and avoidance of the effects of abnormal changes and other factors affecting the capital market are considered. In order to evaluate stock returns, it is possible to select effective factors, to simulate and develop a model appropriate to the conditions governing the capital market in Iran. In the present study, by forming portfolios of investments and identifying and refining effective factors, the classification and estimation of the hybrid model of penalty and multi-factor (P & PCA) functions were performed based on the functional data during 2007-2017. The results of this study indicated that the extensive use of the simulation algorithm for the penalty function in the form of P & PCA estimation method improves the efficiency of multi-factor methods in stock return evaluation, and that the use of the hybrid algorithm of penalty and multi-factor functions, compared to the exclusive use of multi-factor models, brings a higher accuracy in estimating stock returns.
Authors and Affiliations
Aliakbar Farzinfar, Hossein Jahangirnia, Hasan Ghodrati, Reza Gholami Jamkarani
Keywords
Related Articles
- EP ID EP648753
- DOI 10.22034/AMFA.2019.584793.1180
- Views 76
- Downloads 0
On Vector Equilibrium Problem with Generalized Pseudomonotonicity
In this paper, first a short history of the notion of equilibrium problem in Economics and Nash$\acute{'}$ game theory is stated. Also the relationship between equilibrium problem among important mathematical problems li...
Free Cash Flow, Institutional Ownership and Long-Term Performance
Performance appraisal is a process which help shareholders make informed and optimal investment decisions. In recent decades, a long stream of research has devoted particular attention to the importance and impact of fin...
Improving Stock Return Forecasting by Deep Learning Algorithm
Improving return forecasting is very important for both investors and researchers in financial markets. In this study we try to aim this object by two new methods. First, instead of using traditional variable, gold price...
The Effectiveness of the Automatic System of Fuzzy Logic-Based Technical Patterns Recognition: Evidence from Tehran Stock Exchange
The present research proposes an automatic system based on moving average (MA) and fuzzy logic to recognize technical analysis patterns including head and shoulder patterns, triangle patterns and broadening patterns in t...
Confidence Interval for Solutions of the Black-Scholes Model
The forecast is very complex in financial markets. The reasons for this are the fluctuation of financial data, Such as Stock index data over time. The determining a model for forecasting fluctuations, can play a signific...