Exploring A New Factor Based on The Fama-French Model During COVID-19

Yuyong Sun ()
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Yuyong Sun: Northeastern University, D’Amore-McKim School of Business

A chapter in Proceedings of the 2023 International Conference on Economic Management, Financial Innovation and Public Service (EMFIPS 2023), 2024, pp 801-813 from Springer

Abstract: Abstract COVID-19 has had a huge impact on all industries in the world. Change brings risks but also opportunities. During the pandemic, the Fama-French five-factor model may not be suitable for some industries. This paper tries to explore the explanatory power of the five-factor model and introduce the influencing factors of COVID-19 to improve the model. The article begins with a multiple linear regression for 49 industries using the five-factor model. Then the growth rate of COVID-19 confirmed cases is added as the new factor in six industries where the five-factor model is weak to explain the excess return. The financial trading industry performs best after adding the new factor and there are some interesting results. The results indicate there is a positive correlation between the pandemic and the excess return of the trading industry. Then this article discusses insignificant factors in regression results and the positive coefficient of the proposed factor for the trading industry. Particularly, similar results may occur in the future when encountering significant events similar to COVID-19, which are useful for the trading industry and other decision-makers.

Keywords: Fama-French model; COVID-19; Trading industry; U.S. stock market (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-441-9_68

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DOI: 10.2991/978-94-6463-441-9_68

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