FAMA-FRENCH THREE-FACTOR ASSET PRICING MODEL IN BORSA ISTANBUL: INCLUDING TWO ADDITIONAL FACTORS IN THE MODEL

This paper first examines the validity of the Fama-French three-factor asset pricing model (FF3F) in the Borsa Istanbul (BIST). Subsequently, the model's validity is demonstrated, and two additional factors—trading volume and exchange rate—are incorporated in conjunction with the conventional factors employed in the FF3F model: market risk, size, and value. This is achieved by utilizing daily data from 70 listed firms included in the highly representative BIST-100 index from January 2010 to December 2019. The regression estimations indicate that the FF3F model is a valid representation of the BIST, both before and after the inclusion of additional factors. We demonstrate that it effectively captures the risk-return dynamics for market portfolios in the BIST. Furthermore, we show that incorporating trading volume and exchange rate factors enhances the model’s accuracy. JEL Codes: G10, G11, G12.