The Size and Book-to-Market Effects and the Fama-French Three-Factor Model in Small Markets: Preliminary Findings from New Zealand

Abstract

This study uses New Zealand stock market data from 1994-2002 to investigate size and book-to-market as determinants of returns in New Zealand share market, and the ability of the Fama-French three-factor model to explain the variation in stock returns. The results suggest a statistically significant size effect but a weak book-to-market effect. Additionally, the study also finds some improvement in explanatory power provided by the three-factor model relative to the conventional Capital Asset Pricing Model although not in the same magnitude as those reported in studies using relatively larger markets.