Four Factor Model in Indian Equities Market

We compute the Fama-French and momentum factor returns for the Indian equity market for the October 1993 - December 2013 period using data from CMIE Prowess. We differ from the previous studies on this topic, in the Indian market, in several significant ways. First, we cover a greater number of firms relative to the existing studies. Second, we exclude illiquid firms to ensure that the portfolios are investible. Third, we have classified firms into small and big using more appropriate cut-off considering the distribution of firm size. Fourth, as there are several instances of vanishing of public companies in India, we have computed the returns with a correction for survival bias. During the period from January 1994 to December 2014, the average annual return of the momentum factor was 21.9%; the average annual return on the value portfolio (HML was 15.3%; that of the size factor (SMB) was 15.3%; that of the size factor (SMB) nearly 0%; and the the average annual excess return on the market factor (MRP) was 11.5%. This is a revised version of our earlier paper on this topic. The revision is carried out to primarily accommodate the data of firms which are retrospectively added to the prowess database by CMIE. The time series of daily, monthly and yearly returns of the factors and the underlying portfolios are made available at an online data library. The authors would update the library on a monthly basis.