ASSESSMENT OF THE FAMA AND FRENCH HEXAGONAL MODEL IN ANALYZING EQUITY RETURNS ON THE IRAQ STOCK EXCHANGE, EMPHASIZING MOMENTUM AND LIQUIDITY FACTORS

Povzetek

This study seeks to evaluate the applicability of the six-factor Fama and French model in elucidating stock returns in the Iraqi stock market, particularly emphasizing momentum and liquidity variables from 2014 to 2023. The research employs a quantitative analytical methodology, utilizing historical financial data gathered from a sample of 10 publicly traded companies, with multiple regression analysis as the primary statistical instrument to assess the correlation between six variables and stock returns.

The findings indicated that the six-factor model of Fama and French possesses superior explanatory power for equity returns in the Iraqi market when juxtaposed with the conventional capital asset pricing model (CAPM). Furthermore, the study uncovered distinctive behavior of certain factors within the Iraqi market, revealing a negative and significant impact of the size (SMB) and value (HML) factors, suggesting a preference among investors for large corporations and growth stocks. The liquidity factor (LIQ) revealed that highly liquid stocks yield superior returns, contradicting the conventional theory, which anticipates a risk premium for low-liquid stocks. Conversely, the momentum factor (UMD) proved to be an unreliable predictor of future stock performance. In contrast, the profitability factor (RMW) and investment factor (CMA) aligned with traditional theory, indicating that firms exhibiting high profitability and conservative investment strategies receive enhanced returns.

The study advises against exclusive dependence on the beta coefficient as the singular metric for risk and return, advocating for the incorporation of supplementary factors such as profitability, investment strategies, and company size in investment decisions. It also urges the execution of comprehensive future research to elucidate the contradictory behavior of certain factors in the Iraqi market and to enhance liquidity and market efficiency.