Fama-French Six Factor Model: Evidence from the Indian equity market

Purpose : This study empirically investigates the performance of a six-factor asset pricing model that incorporates momentum in the Indian equity market context. Design/Methodology/Approach : Using monthly return data from NSE-listed firms spanning October 1997 to September 2024, we construct portfolios based on size, book-to-market (value), operating profitability,and asset investment through two-way and three-way sorting techniques, generating 45 double-sorted and 36 triple-sorted portfolios. To ensure robustness, the performance of competing models is assessed via GRS F-statistics, average absolute alphas, sampling error ratios, factor loadings, and adjusted R² across varying portfolio constructions. Findings : The results confirm that the multi-factor frameworks, particularly the Fama-French five-factor model augmented with momentum (six-factor model), significantly outperform simpler models such as CAPM and the original three-factor approach in explaining cross-sectional variation in returns. The size effect remains robust, although the explanatory power of the value factor diminishes when the profitability and investment factors are included. Profitability and investment factors prove essential and non-redundant for the Indian market, while momentum adds significant incremental explanatory power. Despite these improvements, some persistent abnormal returns remain in specific segments, such as small caps, high profitability, and high book-to-market portfolios, indicating possible model incompleteness or residual anomalies. Practical Implications : This study underscores the limitations of single-factor models in emerging markets and advocates multifactor approaches in portfolio management, risk evaluation, and performance assessment. Indian investors and fund managers should incorporate firm size, profitability, investment behavior, and momentum factors into asset pricing and investment decision frameworks to capture nuanced return drivers effectively. Originality/Value : This research represents one of the most extensive and methodologically rigorous examinations of asset-pricing models in the Indian context over nearly three decades. It provides novel insights into factor dynamics, particularly in emerging markets, addresses factor redundancies, and reinforces the value of locally adapted multifactor models, contributing to bridging gaps in the empirical asset pricing literature on India.