Author(s): Ahmed M. Sakr, Amr Youssef, May S. Mahrous
This research paper aims to examine the determinants of stock returns in Egypt as an emerging stock market after controlling some macroeconomic variables. The testable models in this study are Fama and French Three-Factor model and Fama and French Five-Factor model. While the defined macroeconomic variables are inflation rate and foreign currency exchange rate. We utilized the cross-sectional regression of Fama-MacBeth (1973) procedure over the sample period by applying time-varying betas. This research consists a sample of (136) firms listed in Egyptian stock market. The sample period from July 2005 till September 2019. The cross-sectional regression applied on the excess return of individual stocks as main test asset to capture time variation in betas using the rolling regression approach. The descriptive statistics show the existence of market and size effect, while the results of regression show the failure of the Fama and French Three-Factor and Five-Factor Models in Egyptian stock market to capture cross-sectional variation of real stock returns expressed in US dollar. The tested models are not statistically priced and producing high significant pricing errors. Finally, the stakeholder of Egyptian stock market can reward for market, value and profitability risk factors only.