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http://dx.doi.org/10.13106/jafeb.2020.vol7.no10.513

The Time-Varying Coefficient Fama - French Five Factor Model: A Case Study in the Return of Japan Portfolios  

LIAMMUKDA, Asama (Program in Applied Statistics, Department of Statistics, Faculty of Science, Chiang Mai University)
KHAMKONG, Manad (Program in Applied Statistics, Department of Statistics, Faculty of Science, Chiang Mai University)
SAENCHAN, Lampang (Department of Statistics, Faculty of Science, Chiang Mai University)
HONGSAKULVASU, Napon (Faculty of Economics, Chiang Mai University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.10, 2020 , pp. 513-521 More about this Journal
Abstract
In this paper, we have developed a Fama - French five factor model (FF5 model) from Fama & French (2015) by using concept of time-varying coefficient. For a data set, we have used monthly data form Kenneth R. French home page, it include Japan portfolios (classified by using size and book-to-market) and 5 factors from July 1990 to April 2020. The first analysis, we used Augmented Dickey-Fuller test (ADF test) for the stationary test, from the result, all Japan portfolios and 5 factors are stationary. Next analysis, we estimated a coefficient of Fama - French five factor model by using a generalized additive model with a thin-plate spline to create the time-varying coefficient Fama - French five factor model (TV-FF5 model). The benefit of this study is TV-FF5 model which can capture a different effect at different times of 5 factors but the traditional FF5 model can't do it. From the result, we can show a time-varying coefficient in all factors and in all portfolios, for time-varying coefficients of Rm-Rf, SMB, and HML are significant for all Japan portfolios, time-varying coefficients of RMW are positively significant for SM, and SH portfolio and time-varying coefficients of CMA are significant for SM, SH, and BM portfolio.
Keywords
Nonparametric Regression; Japanese Stock Exchange; Time-Varying Coefficient; Thin Plate Spline; Fama - French Five Factor Model;
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