Comparative Analytical Study of CAPM Model and Fama-French Three-Factor Model - A Case Study of the Chinese Market

Xinyuan Zhang ()
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Xinyuan Zhang: University of Birmingham, College of Social Sciences

A chapter in Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025), 2025, pp 896-904 from Springer

Abstract: Abstract As the limitations of the traditional Capital Asset Pricing Model (CAPM) in explaining real-world market returns become apparent, an increasing number of studies are focusing on the effectiveness of multi-factor models. This study conducts a comprehensive comparative analysis of the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor model in the context of China’s capital market. This research selects a representative sample of listed companies from various industries on the Shanghai and Shenzhen stock exchanges during the period from 2023 to 2024. Using empirical methods including regression analysis, R2 comparison, risk premium stability tests, and regression coefficient significance tests, the study evaluates the explanatory power and robustness of both models. The results of this paper show that the Fama-French three-factor model significantly outperforms the CAPM in explaining stock returns in the Chinese market. The Fama-French three-factor model effectively captures the size effect and value effect, which are prevalent in emerging markets such as China. However, both models exhibit limitations in accounting for time-varying risk premiums and market anomalies, indicating room for further model refinement.

Keywords: Capital Asset Pricing Model; Fama-French Three-Factor Model; Chinese Stock Market; Asset Pricing; Factor Analysis (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-835-6_95

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DOI: 10.2991/978-94-6463-835-6_95

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