This topic is basically related to the econometric analysis and techniques used to develop the model for the calculation of expected stock returns taking into the account various fundamental or accounting variables of the respective stock. The model developed is basically an extension of Fama and French 3-factor model but it is for the calculation of return from individual stocks. The variables considered are all fundamental accounting variables. The technique used for the generating this proposed model is an advanced regression technique known as “panel regression technique”. To select the best model, all the four panel regression techniques i.e. Fixed One-Way, Fixed Two-Way Effect, Random One-Way and Random Two-Way Effect techniques have been used. For the development of the model, two econometrics softwares: SAS Enterprise Guide v3.0 and EVIEWS v7.0 have been used extensively.
The factors affecting the return according to the model are supported by the theory also. A total of 6 fundamental factors have found to be significantly affecting the expected stock return along with the 3 factors from the Fama and French 3 factors model.