An Evaluation of Asset Pricing Models in the Swedish Context - Is Carharts Four-Factor Model more suitable than its predecessors for explaining the Swedish stock exchange?

Abstract

This thesis investigates the explanatory power of the Capital Asset Pricing Model, the Fama French Three-Factor Model and the Carhart Four-Factor Model on the Stockholm Stock Exchange over the period 2012-2016. The purpose is to examine whether or not the Carhart Four-Factor Model explains excess return variability better than the Capital Asset Pricing Model and the Fama French Three-Factor Model. The results conclude that the Carhart Four-Factor Model has significantly better explanatory power than the Capital Asset Pricing Model, but not significantly better than the Fama French Three-Factor Model.