Microsoft Word - 3- Mahdi MirzaeiDeveloping Multifactor Asset
Pricing Models Using Firm's Life Cycle
Mehdi Mirzaie Ph.D. Candidate, Department of Accounting, Faculty of
Administrative Science & Economics, University of Isfahan,
Isfahan, Iran. E-mail:
[email protected].
Abdullah Khani *Corresponding author, Associate Prof., Department
of Accounting, Faculty of Administrative Science & Economics,
University of Isfahan, Isfahan, Iran. E-mail:
[email protected]
Mahmoud Botshekan Assistant Prof., Department of Management,
Faculty of Administrative Science & Economics, University of
Isfahan, Isfahan, Iran. E-mail:
[email protected]
Abstract Objective: This research is aimed at introducing firms'
life cycles as a new and effective factor on stock return and
comparing the performance of the new multifactor asset pricing
models (augmented by firm's life cycle factor) with corresponding
conventional multifactor asset pricing models in explaining stock
returns.
Methods: To this end, Dickinson's cash flows pattern has been used
to measure the firm's life cycle. A Firm's life cycle factors are
constructed based on the difference in average returns of firms in
maturity stage and firms in other firm's life cycle stages. Then,
this factor waS combined with the conventional multi-factor pricing
model, namely the Fama and French three-factor model, Carhart
four-factor model, Fama and French five-factor model and Ho, Xue,
and Zhang four-factor model. In the following, using time series
regression approach, the performance of augmented multifactor asset
pricing models and corresponding conventional ones are compared.
For this purpose, the accounting and market data from companies
listed in Tehran stock exchange and Iran Fara Bourse between the
years 2004 and 2018 and the variety of test assets based on
different firm's characteristics were used
Results: The results show that augmented multifactor pricing models
have a better performance compared to corresponding multifactor
pricing models in explaining stock returns and outperformance is
more evident when test assets are formed using firm's life cycle
compared to test assets formed without the firm's life cycle.
Conclusion: The addition of a firm's life cycle factor improves the
performance of conventional multifactor pricing models in
explaining stock returns.
Keywords: Multifactor asset pricing model, Firm's life cycle, Test
assets, Cash flow patterns.
Citation: Mirzaie, M., Khani, A., & Botshekan, M. (2019).
Developing Multifactor Asset Pricing Models Using Firm's Life
Cycle. Financial Research Journal, 21(4), 545-569. (in Persian)
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Financial Research Journal, 2019, Vol. 21, No.4, pp. 545-569 DOI:
10.22059/frj.2019.278769.1006850 Received: April 27, 2019;
Accepted: November 20, 2019 © Faculty of Management, University of
Tehran
[email protected] :.
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[email protected]: .
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569 -545. 4 21 1398 DOI: 10.22059/frj.2019.278769.1006850
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