The Examination of a Profitability-Based Four-Factor Model to Explain Stock Returns: Empirical Evidence from the German Stock Market

Rolf J. Daxhammer & Jonathan Kappler
In a recent publication Novy-Marx (2013) finds evidence that the variable gross profitabil-ity has a strong statistical influence on the common variation of stock returns. He also points out that there is common variation in stock returns related to firm profitability that is not captured by the three-factor model of Fama and French (1993). Thus, this thesis aug-ments the three-factor model by the factor gross profitability and examines whether a prof-itability-based four-factor model is able...
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