A Comparison between basic Fama and French three Factor model and basic Carhart four factors Model in Explaining the Stock return on Tehran Stock Exchange

In the past two decades many researchers have used some kinds of factor models for explanation of stock returns. The aim of this study is comparing the explanatory power of two main multi-factor models in relation to stock returns. This study is based on a Carhart four-factor model. The variables in this model are market risk premium، value، size and momentum factors. The aim of this study is evaluating the explanatory power of this model in Tehran Stock Exchange. The multivariate regression is used to analyze the propositions. The results show that the use of multi-factor models is better than one-factor model of capital asset pricing. The results also show that the four-factor model has not the advantage of Fama and French three-factor model، because only two variables (market risk and size) influence on stock returns.