Analysis of Fama-French Five-Factor Model Applicability in Chinese A-Share Market

Zeyu Zhu ()
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Zeyu Zhu: University of Southampton, Department of Economics

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 42-52 from Springer

Abstract: Abstract As it known that Fama and French proposed the five-factor model in 2015 and has been widely discussed by scholars and public. Being an emerging market, studying the Chinese stock market is of crucial importance, and Fama-French 5-factor model can be a very typical and effective tool for stock market analysis. To test the effectiveness of the 5-factor F&F model for the A-share market, this paper selects the 300 A-share equities from 2017 to 2021 as the data for the sample. Constructing weighted portfolio by crossing the size to B/M ratio, profitability, and investment, then analyzing the average monthly return of portfolio. Furthermore, by conducting the regression and GRS test, the results show that the 5-factor model overperforms the 3-factor model even though RMW and CMA have little influence on the A-share market. In general, the new factor profitability and investment improve the model slightly and the Fama&French 5-factor model is valid to the A-share market during 2017 to 2021.

Keywords: Factor Analysis; Fama&French 5-Factor model; Regression; A-share Market (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-246-0_6

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DOI: 10.2991/978-94-6463-246-0_6

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