Authors
Abstract
In asset pricing and portfolio management the Fama-French three factor model is a model designed by Eugene Fama and Kenneth French to describe stock returns. The traditional asset pricing model, known formally as the Capital Asset Pricing Model, CAPM, uses only one variable, beta, to describe the returns of a portfolio or stock with the returns of the market as a whole. In contrast, the Fama–French model uses three variables. Fama and French started with the observation that two classes of stocks have tended to do better than the market as a whole: small caps and, stocks with a high book-to-market ratio, customarily called value stocks, contrasted with growth stocks. They then added two factors to CAPM to reflect a portfolio's exposure to these two classes Based on Fama and French about short term abnormal return in IPO's investors may fall in to traps by involving IPO's without considering fundamentals of stocks which would cause their loss, so this survey is conducted to study the liquidity and leverage effects beside Fama-French three factors on IPO's. this survey uses Amihood illiquidity measure and leverage ratio to explore the long run return (one year) considering (3 month) as short term. regression analysis showed among 5 major variables only market premium and size had significant relation with long run return.
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