Testing of Fama and French Factors in Indian Capital Market

We test whether Fama and French factors explain the portfolio returns as envisaged in Fama and French (1995). We use National Stock Exchange of India Limited (NSE)'s continuously traded stocks, Nifty Index and other relevant data from July 1996 to June 2010. We form portfolios based on BE/ME and classify them into high medium and low value portfolios. The returns of these portfolios are regressed over independent variables market, size and value. The results show that portfolio returns are explained by all these factors. Our results also show that market has the highest explanatory power followed by size and value. Further, market, size and value factors explain portfolio returns in high and medium BE/ME portfolios and, only market factor explain returns of low BE/ME portfolios.