TY - JOUR
T1 - A test of a two-factor ‘market and oil’ pricing model
AU - Faff, Robert W.
AU - Brailsford, Timothy J.
N1 - Publisher Copyright:
© Emerald Backfiles 2007.
Copyright:
Copyright 2018 Elsevier B.V., All rights reserved.
PY - 2000/1/1
Y1 - 2000/1/1
N2 - In this paper we employ a GMM-based approach to test the restrictions imposed by a two-factor ‘market and oil’ pricing model when a risk-free asset is assumed to exist. We examine the Australian market which has several interesting features including self-sufficiency in relation to oil, a large concentration of natural resource companies, susceptibility to the ‘Dutch disease’ and a diverse industry base. We extend previous literature by examining industry sector equity returns as different industry groups are likely to have different exposures to an oil factor, particularly in Australia. In the formal tests, we find evidence in favour of the model, particularly for industrial sector industries. The preferred model includes a domestic portfolio proxy for market returns in addition to the oil price factor and we find evidence of a positive market risk premium as well as a significantly priced oil factor.
AB - In this paper we employ a GMM-based approach to test the restrictions imposed by a two-factor ‘market and oil’ pricing model when a risk-free asset is assumed to exist. We examine the Australian market which has several interesting features including self-sufficiency in relation to oil, a large concentration of natural resource companies, susceptibility to the ‘Dutch disease’ and a diverse industry base. We extend previous literature by examining industry sector equity returns as different industry groups are likely to have different exposures to an oil factor, particularly in Australia. In the formal tests, we find evidence in favour of the model, particularly for industrial sector industries. The preferred model includes a domestic portfolio proxy for market returns in addition to the oil price factor and we find evidence of a positive market risk premium as well as a significantly priced oil factor.
UR - http://www.scopus.com/inward/record.url?scp=34047156945&partnerID=8YFLogxK
U2 - 10.1108/eb037949
DO - 10.1108/eb037949
M3 - Article
AN - SCOPUS:34047156945
SN - 0114-0582
VL - 12
SP - 61
EP - 77
JO - Pacific Accounting Review
JF - Pacific Accounting Review
IS - 1
ER -