A0154
Title: On the quantile market risk factor model with heteroskedasticity, skewness, and leptokurtosis
Authors: Cathy W-S Chen - Feng Chia University (Taiwan) [presenting]
Kai Y-K Wang - Feng Chia University (Taiwan)
Abstract: The Fama French three-factor model advances the capital asset pricing model by expanding size risk and value risk factors to market risk factors. This research introduces a new quantile Fama-French three-factor model associated with heteroskedasticity, skewness, and leptokurtosis that allows for various market risk factor estimates under different market conditions. We employ an adaptive Bayesian Markov chain Monte Carlo sampling scheme to estimate all parameters in the proposed model over various quantile levels while assessing the performance via a simulation study. We analyze some daily stock returns from NASDAQ and further select the best model via the posterior odds ratio. It is clear that the various market conditions and GARCH effect should be incorporated into the model. Findings show that the estimation of the size factor turns insignificant for lower quantiles - i.e., when the market is in a panic, investors ignore the size effect of a company's assets.
