Analyzing the Performance of Fama and French Five-factor Model Using GRS Test

Fama and French five-factor model (2015), is a response to inconsistencies that have been observed in Fama and French three-factor model empirical tests. Five-factor model adds profitability and investment factors to three-factor model. This paper is aimed to analyze the performance of five-factor model in Tehran stock exchange and uses GRS test to compare five-factor model with former three-factors (market premium, size and value). This test is based on regressions estimated intercept analysis. These estimates has been made with three portfolio construction templates and measuring of studied factors with different patterns. Based on results of this research, by controlling profitability and investment factors, three-factor model still perform better for explaining excess returns of studied portfolios. Also, two added factors don’t increase performance of the model.