Australian stock indexes and the four-factor model
Costa, Bruce A., Jakob, Keith, Niblock, Scott J., & Sinnewe, Elisabeth (2014) Australian stock indexes and the four-factor model. Applied Finance Letters, 3(1), pp. 10-21.
Stock indexes are passive 'value-weighted' portfolios and should not have alphas which are significantly different from zero. If an index produces an insignificant alphan, then significant alphas for equity funds using this index can be attributed solely to manager performance. However, recent literature sugests that US Stock indexes can demonstrate significant alphas, which ultimately raise questions regarding equity fund manager performance in both the US and abroad. in this paper, we employ the Carhart four-factor model and newly available Asian-Pacific risk factors to generate alphas and risk factor loadings for eight Australian stock indexes from January 2004 to December 2012. We ifnd that the initial full sample period analysis does not provide indication of significant alphas in the indexes examined. However, by carrying out 36-month rolling regressions, we discover at least four significant alphas in seven of the eight indexes and factor loading variability. As previously reported in the US, this paper confirms similar issues with the four-factor model using Australian stock indexes and performance benchmarking. In effectively measuring Australian equity fund manager performance, it is therefore essential to evaluate a fund's alpha and risk factors relative to the alpha and risk factors of the appropriate benchmark index.
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|Item Type:||Journal Article|
|Keywords:||Australia, Carhart, Equity, Funds, Stock indexes, Performance|
|Subjects:||Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200)|
|Divisions:||Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
|Deposited On:||26 Feb 2015 23:18|
|Last Modified:||01 Mar 2015 22:50|
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