Both the capital asset pricing model and Fama and French's (1993) three-factor model have consistently failed to explain momentum in stock returns, with only Carhart's (1997) four-factor model having some success in this regard. This study examines whether an alternative three-factor model proposed by Chen, Novy-Marx, and Zhang (2011) and a five-factor model forwarded by Fama and French (2015), which both include profitability and investment as pricing factors, can explain momentum on the South African market. Consistent with international evidence, the pricing errors from these two models are lower and although these errors remain significant, the results reveal that profitability and, to a lesser extent, investment are important risk-based factors that must be considered in explaining the short-term continuation in stock returns.
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