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Fama French Three Factor Model in Chinese Stock Market during Covid-19

In: Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022)

Author

Listed:
  • Ningrong Cai

    (University College London, Department of Statistical Science)

  • Danqing Song

    (Department of Economics, London School of Economics and Political Science)

  • Yiqing Zhang

    (Department of Economics, London School of Economics and Political Science)

  • Zhuoqun Zhang

    (Tianjin Foreign Studies University, School of International Business)

Abstract

Many papers in the empirical finance literature examine the Fama-French three-factor model of stock returns in different markets. This paper applied the three-factor model to the Chinese stock market in the Covid-19 specific period and made a comparison with the pre-Covid model application to distinguish the impact of a pandemic shock on the model. Factors under the cross-sectional regression model become less significant during the shock and hence this paper further provides a possible improvement on the model under the shock by adding the stock market’s expectation of volatility as a proxy of market anticipation. The empirical results indicate that the additional factor added is significantly negatively associated with the stock return. As a whole, results are reasonably consistent with the Fama-French three-factor model.

Suggested Citation

  • Ningrong Cai & Danqing Song & Yiqing Zhang & Zhuoqun Zhang, 2022. "Fama French Three Factor Model in Chinese Stock Market during Covid-19," Advances in Economics, Business and Management Research, in: Faruk Balli & Au Yong Hui Nee & Sikandar Ali Qalati (ed.), Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022), pages 581-592, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-052-7_68
    DOI: 10.2991/978-94-6463-052-7_68
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