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Analysis of Fama-French Five-Factor Model Applicability in Chinese A-Share Market

In: Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023)

Author

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  • Zeyu Zhu

    (University of Southampton, Department of Economics)

Abstract

As it known that Fama and French proposed the five-factor model in 2015 and has been widely discussed by scholars and public. Being an emerging market, studying the Chinese stock market is of crucial importance, and Fama-French 5-factor model can be a very typical and effective tool for stock market analysis. To test the effectiveness of the 5-factor F&F model for the A-share market, this paper selects the 300 A-share equities from 2017 to 2021 as the data for the sample. Constructing weighted portfolio by crossing the size to B/M ratio, profitability, and investment, then analyzing the average monthly return of portfolio. Furthermore, by conducting the regression and GRS test, the results show that the 5-factor model overperforms the 3-factor model even though RMW and CMA have little influence on the A-share market. In general, the new factor profitability and investment improve the model slightly and the Fama&French 5-factor model is valid to the A-share market during 2017 to 2021.

Suggested Citation

  • Zeyu Zhu, 2024. "Analysis of Fama-French Five-Factor Model Applicability in Chinese A-Share Market," Advances in Economics, Business and Management Research, in: Shehnaz Tehseen & Mohd Naseem Niaz Ahmad & Rafia Afroz (ed.), Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), pages 42-52, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-246-0_6
    DOI: 10.2991/978-94-6463-246-0_6
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