An Empirical Analysis on Performance of the Fama and French Five-Factor Model in Different Industries

Han Zhang ()
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Han Zhang: The University of New South Wales, Business School

A chapter in Proceedings of the 2023 2nd International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2023), 2024, pp 171-182 from Springer

Abstract: Abstract This study examines the performance of the Fama and French five-factor model (FF5) in various industries. The analysis encompasses a comprehensive period from January 1990 to February 2023, encompassing 17 distinct industry portfolios. By comparing FF5 against other prominent asset pricing models such as the Capital Asset Pricing Model (CAPM), Fama-French three-factor model (FF3), Carhart four-factor model (CFFM), and Fama-French six-factor model (FF6), the research aims to identify the most effective factor models for each industry. The results indicate that FF5 consistently outperforms other models across the majority of industries studied. This suggests that FF5 provides a robust framework for understanding and evaluating asset pricing in diverse industry settings. The findings contribute to the growing body of literature on asset pricing models, supporting the application of FF5 as an effective tool for assessing risk and expected returns across different industries. The study’s methodology involves constructing industry portfolios based on firms operating within specific sectors and examining the performance of various factor models within each portfolio. The analysis utilizes a range of statistical techniques, including regression analysis, to assess the performance and significance of the different factors within each model. The findings hold significant implications for portfolio managers, investors, and financial analysts, as they highlight the importance of considering multiple factors beyond the traditional CAPM when evaluating investment opportunities in different industry sectors.

Keywords: Asset Pricing Models; Different Industries; COVID-19 Pandemic (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-268-2_21

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DOI: 10.2991/978-94-6463-268-2_21

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