On the premium puzzles in the French stock market
Résumé
In this paper, we study the characteristics of French stock returns using asset pricing models over a long period including crisis periods.
Especially, we test the CAPM, Fama and French [1993] three factor and Carhart [1997] four factor models on the French Stock Market over more than three decades. We use returns of 25 size/book to market and 25 size/momentum portfolios. Our study covers the period from July 1981 to June 2013. We find robust results about the French market. The four factor model explains better the common variation in stock returns, still it adds marginal explication compared to the three factor model. However, we show that size, value and momentum effects are more significant when stock markets are febrile. Except for loser portfolios, our results suggest that asset pricing models are more relevant for big capitalizations compared to small ones. Finally, using the Gibbons, Ross and Shanken [1989] test, market, size, value and momentum factors explain better stock returns than one and three factor models. All our results show the superiority of the four factor model. In the French stock market, we show that market, size, value and premium factors provide better description of stock returns particularly over crisis period. Finally, we show that the better proxy for the market portfolio is the value-weighted portfolio of all stocks.