The validity of fama and french three factor asset pricing model: A study on stock exchange in Istanbul

The aim of this study reveal that market risk premium, the book value / market value ratios belonging to the firm and the effects of firm size measures.. Fama and French (1993) found that stock returns did not depend on a single factor as described in the Financial Asset Pricing Model and that portfolio turnover was also influenced by firm size and book value / market value ratio factors in studies of multi-factor models. In this study, the validity of the Fama and French Three-Factor Asset Pricing Model in BIST was investigated. Monthly data of the stocks of 49 companies operating in BIST Corporate Governance Index between 2010-2017 were tested by the regression analysis method. The study results demonstrate that the Fama and French Three-Factor Asset Pricing Model is applicable for the relevant period in Stock Exchange Istanbul. However, contrary to expectations, there is no value premium presence and scale effect in BIST. When the findings are examined, BL portfolio, which has a big size in terms of firm size and low ratio in terms of DD/PD ratio, is observed as the portfolio acquiring the highest return. It has been determined that the Fama and French Three-Factor Asset Pricing Model is not valid for the SL, SH and BM portfolios.