Fama and French (2015) recently published a new five-factor asset pricing model. The model extends the previous proposed three-factor model (Fama & French, 1992) by adding two new factors i.e. profitability and investment factors. This thesis utilizes the stocks listed at the Karachi Stock Exchange and compares the five-factor and the three-factor models regarding explanatory power and asset mispricing. The thesis also investigates whether the value factor becomes redundant when the five-factor model is used in the explanation of stock or portfolio returns. Additionally, the thesis examines the effect of the momentum factor in the explanation of portfolio return when it is added to the five-factor model. The thesis covers the period 2001 – 2015. Daily stock returns of up to 332 listed companies are used. Our findings indicate that the performance of the five-factor model is improved over the three-factor model by 6%. The momentum factor marginally improves the R2 of the five-factor model, but at a cost of increased mispricing errors. Lastly, we did not find value factor to be redundant in explaining portfolio return when the news factors are included in the three-factor model. Our results will help financial managers in determining cost of equity and price risks for their investments in an efficient way. Our study will also help researchers to understand the role of profitability and investment factors in an emerging market like Karachi Stock Exchange. Supervisor:- Dr. Abdul Rashid