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Which is the best: A comparison of asset pricing factor models in Chinese mutual fund industry

Yezhou Sha and Ran Gao

Economic Modelling, 2019, vol. 83, issue C, 8-16

Abstract: Factor models are commonly used in estimating risk-adjusted fund performance. We compare the commonly used factor models in empirical asset pricing studies and find that Fama and French (2015) five-factor model outperforms other models in the Chinese mutual fund industry and in most fund segments. The factor models we tested are more effective in explaining the return of index funds than other types. Meanwhile, we also find that the capital asset pricing model (CAPM) better controls the estimated alpha dispersion than other models. Though most multifactor models including Carhart (1997) have higher R-squared than CAPM, the cross-sectional differences between them are not statistically significant.

Keywords: Asset pricing; Mutual fund; China; Factor model; Non-nested model comparison (search for similar items in EconPapers)
JEL-codes: G12 G23 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.econmod.2019.09.016

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