To Compare the Explanatory Power of the Five-Factor Fama French Model with Carhart and q-Factor Models: Evidences from Tehran Stock Exchange

One of the most important issues in financial markets is the stock return prediction. The aim of this study to compare the explanatory power of five-factor Fama French model (2015) with four-factor Carhart model (1997) and q-factor HXZ model (2014) in relation to stock returns.
We find that the Five-Factor Fama French Model outperforms the Carhart and q-factor models over the period April 2010 - March 2015 in Tehran stock Exchange.
In contrast to the study of Fama and French (2015) in U.S. stock market, we find that value factor (HML) is not redundant with adding CMA and RMW. The result also shows that among beta, size, value, Momentum, profitability and investment variables, only two factors (momentum and investment) don’t effect on stock return.