Factors affecting expected stock returns: evidence from the secondary and tertiary sectors of the Athens stock exchange

The present study investigates the effect of systematic risk, size and value on the returns of stocks of the secondary and the tertiary sector of the Athens Stock Exchange. The holdout sample is divided in two sub-samples, for the period 1997–2006. The methodology employed is the time-series approach and the Capital Asset Pricing Model (CAPM) and the Fama and French Three Factor Model are applied. Monthly returns on portfolios of stocks are regressed against the returns of a market portfolio of stocks and mimicking portfolios for size and book-to-market equity. The results seem to be supportive of the 3FM model in both sectors. The 3FM has significant power in capturing the variation of average stock returns. Furthermore, it yields more precise estimates as compared to the CAPM. However, the results of the empirical tests agree that these three factors do not constitute a parsimonious set of explanatory variables.