| Summary: | This research aimed to see if the CAPM, FF3FM, and FF3FM could explain the abnormal
portfolio return variances. The explanatory factors were the market risk factor, RM-Rf, size
risk factor (SMB), BE/ME risk factor (HML), RMW, and the CMA. The FF5FM was created to
put the model's results to the test. The study's findings are based on each stock index's
monthly excess return. ACCORDING TO THE ESTIMATION RESULTS, the CAPM and FF3FM and
the FF5FM offer limited explanations on the varying portfolio returns of portfolios of main
stock indexes in G7 countries throughout the world. The study results reveal statistically
significant differences in the excess stock index returns realized in the stock markets. The Dow
and Jones industrial average has the highest monthly returns of 0.53%, followed by the Nikkei,
while the CAC 40 has -11.16% average monthly returns. CAPM is valid in these stock indices,
including DAX, Dow and Jones, MIB, Nikkei, and the TSX index returns, while the FF3FM can
validly explain the stock index returns to DAX and MIB. The results show that instead of the
explanatory powers increasing after introducing the two additional models to move from
CAPM to FF3FM, the weakness of the explanatory power. According to the findings of the
three-asset pricing, CAPM, FF3FM, and FF5FM, no model can be judged more effectively to
explain all nations' market index returns fully. As a result, portfolio managers must conduct
more in-depth research about the needs and models to determine which model is best for
the specific market under consideration.
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