Asset Pricing of Individual Stocks in Periods of Crisis

The financial crisis of the last decade reopens the question of asset pricing for researchers and practitioners. In this study, we analyze common variation of stock returns during the financial crisis in the French market. We focus on the empirical disparities between the Capital Asset Pricing Model (1964) and the Fama-French three-factor model (1993) for individual stocks (336 firms). We show that market premium, size and value factors provide a better description of single stock returns in a specific period of high uncertainty. This new finding underlines the usefulness of ad hoc models for asset managers. Furthermore, small stocks underperform the market and, surprisingly, are less volatile than large capitalizations. Conversely, stocks with high book-to-market ratios outperform the market, making the existence of additional risk factors consistent. Nevertheless, both models have difficulty explaining the returns on small stocks. Finally, in line with Roll (1977), the choice of market proxy is essential.