Research on the Applicability of Factor Model to Chinese and American Stock Markets

Jiajun Tang ()
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Jiajun Tang: Southwestern University of Finance and Economics, School of Finance and China Financial Research Institute

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 200-206 from Springer

Abstract: Abstract A three-factor model for the price of shares which is based on the CAPM was suggested by Fama. Two factors derived from public market information are added: market value (SMB) and book-to-market ratio (HML). Based on the stock data from June 30th, 2018 to May 31st, 2020, this article used a Fama-French three-factor model to test its applicability to equity markets in China and the United States through portfolio construction, and then compared the recognized factor model regression results in two countries. The study revealed that pattern adjustment of America is better than China, that is, the applicability of this factor model to the Chinese equity market is inferior to that of the US equity market. Chinese development characteristics and market conditions are unique, and its equity performance is affected by many factors. Methods for explaining China stock market still need to be further optimized. The model for explaining Chinese stock market still needs to be further optimized.

Keywords: Applicability; Fama-French three-factor model; factor construction (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_24

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DOI: 10.2991/978-94-6463-246-0_24

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