Author(s)

Haoyue Li ¹

Affiliation(s)

¹ School of Accounting, Southwestern University of Finance and Economics, Chengdu, 611130, China

Corresponding Author

Haoyue Li

ABSTRACT

Three prominent models are used in finance to forecast stock returns and evaluate asset pricing: the Capital Asset Pricing Model (CAPM), the Fama-French three-factor model (FF3), and the Fama-French five-factor model (FF5). The Chinese stock market exhibits unique characteristics and is subject to distinct policies compared to U.S. and European markets. Within the framework of the Chinese Shanghai A-share market, this paper aims to analyze the precision of the forecast of these traditional models for stock market yields. The study utilizes daily stock market data spanning from January 4, 1994, to December 25, 2023, focusing on the Shanghai A-share market while excluding the Growth Enterprise Market (GEM) and the Key Economic Market (KEM). By examining the predictive power of various factors associated with excess returns or risk premiums, the purpose of the article is to assess these models' resilience in the context of the Chinese stock market. The results of the empirical analysis demonstrate that the three-factor model fits the dataset better than the five-factor model or the traditional CAPM in the Chinese market.

KEYWORDS

Fama-French Model, Asset Pricing, The Chinese Stock Market

CITE THIS PAPER

Haoyue Li, The Performance of Fama-French Asset Pricing Models in the Chinese Stock Market. Financial Engineering and Risk Management (2024) Vol. 7: 51-58. DOI: http://dx.doi.org/10.23977/ferm.2024.070108.

REFERENCES

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[8] Fama, E. F., & French, K. R. (2004). The capital asset pricing model: Theory and evidence. Journal of economic perspectives, 18(3), 25-46.
[9] Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of financial economics, 116(1), 1-22.
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[11] Ragab, N. S., Abdou, R. K., & Sakr, A. M. (2019). A comparative study between the Fama and French three-factor model and the Fama and French five-factor model: Evidence from the Egyptian stock market. International Journal of Economics and Finance, 12(1), 52-69.

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