Tests of the Fama Model in India

This study empirically examines the Fama-French three-factor model of stock returns for India. We find evidence for pervasive market, size and book-to-market factors in India stock returns. We find that cross-section means returns are explained by exposures to these three factors, and not by the market factor alone. We find mixed evidence for parallel market, size and book-to-market factors in earnings, we do not find any reliable link between the common risk factors in earnings and those in stock returns. The empirical results, as a whole, are reasonably consistent with the Fama-French three-factor model.