Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/197432 
Year of Publication: 
2016
Citation: 
[Journal:] e-Finanse: Financial Internet Quarterly [ISSN:] 1734-039X [Volume:] 12 [Issue:] 2 [Publisher:] University of Information Technology and Management [Place:] Rzeszów [Year:] 2016 [Pages:] 23-35
Publisher: 
University of Information Technology and Management, Rzeszów
Abstract: 
This article aims to extend evaluation of the classic multifactor model of Carhart (1997) for the case of global equity indices and to expand analysis performed in Sakowski et. al. (2015). Our intention is to test several modifications of these models to take into account different dynamics of equity excess returns between emerging and developed equity indices. Proposed extensions include a volatility regime switching mechanism (using dummy variables and the Markov approach) and the fifth risk factor based on realized volatility of index returns. Moreover, instead of using data for stocks of a particular market (which is a common approach in the literature), we check performance of these models for weekly data of 81 world investable equity indices in the period of 2000-2015. Such an approach is proposed to estimate an equity risk premium for a single country. Empirical evidence reveals important differences between results for classical models estimated on single stocks (either in international or US-only frameworks) and models evaluated for equity indices. Additionally, we observe substantial discrepancies between results for developed countries and emerging markets. Finally, using weekly data for the last 15 years we illustrate the importance of model risk and data overfitting effects when drawing conclusions upon results of multifactor models.
Subjects: 
cross-sectional models
asset pricing models
equity risk premiums
emerging and developed equity indices
data overfitting and model
JEL: 
C15
G11
F30
G12
G13
G14
G15
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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