VIX and the Fama-French Factor Models: An Empirical Study on Portfolio Performance num Processo Farmacêutico
VIX and the Fama-French Factor Models: An Empirical Study on Portfolio Performance
This study examines the complexities of market behavior and asset returns by analyzing monthly returns of six stylized portfolios from the U.S. stock market (NYSE and NASDAQ), spanning from February 2001 to December 2023, segmented by size and value. The objective is to assess the explanatory power of four models: the Capital Asset Pricing Model (CAPM), the Fama-French Three Factor Model (FF3FM), the Fama-French Five Factor Model (FF5FM), and the FF5FM augmented with the Volatility Index (VIX). Using linear regression analysis, the findings indicate that the CAPM explains at least 70% of the variability in returns, whereas the Fama-French models accounts for more than 90% of the variance of stock returns. However, incorporating the VIX into the FF5FM does not significantly enhance the model’s explanatory power. The market risk premium is identified as the dominant factor in explaining return variance, while the size and value effects show inconsistent significance. These results suggest that additional risk factors beyond the traditional Fama-French models may not substantially improve predictions of asset returns in the U.S. stock market. This study provides valuable insights for investors and researchers interested in asset valuation models and their practical implications on portfolio performance.
Capital Asset Pricing Model; Fama-French Three-Factor Model; Fama-French Five-Factor Model; VIX
Carlos Manuel Pinheiro has received a PhD in Finance from ISCTE-Business School. He is currently Associate Professor at ISCAL and Universidade Europeia. As a researcher at BRU-ISCTE, he has published in international journals, presented at conferences, and co-authored the book “Derivados e Outros Instrumentos Financeiros.” His research focuses on international financial markets, governance, and behavioral finance.
Margarida Martins Raimundo has received a BSc in Finance and Accounting from ISCTE Business School – Portugal and a MSc in Management from Universidade Europeia. She is currently Back/Middle Office Technician at Banco de Investimentos Global. Her research interests are in the areas of financial markets and quality management
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