Author(s)

Ziqing Huang

Corresponding Author

Ziqing Huang

ABSTRACT

The development of different asset pricing models can support investors to evaluate the potential returns of listed stocks better. While the capital asset pricing model (CAPM) assumed stock returns only determined by systemic risk, Fama-French made improvements by adding other relative factors to the model. It is essential to consider the different effects of models in various industries, which help to evaluate investment selection. In this article, energy and high-tech industries were selected to be studied, and three-factor and five-factor models were adopted to run regressions, respectively. Then, the different explanatory abilities of each model between the two industries were compared. The results showed that the five factors for the high-tech industry were all significant. In contrast, the profitability factor and the investment style factor were not significant in the energy industry, and were regarded as redundant factors. Therefore, the high-tech industry has high requirements on the profitability and sustainable development ability of enterprises, and the rate of return also fluctuates with these factors accordingly, while the energy industry has little sensitivity to them. Coefficient direction differences suggest both industries are sensitive to the market factor and high-tech industry have higher growth opportunity. Energy and high-tech industry have their specific characteristic that should be adjusted suitable development strategy. As for investment selection, it's more appropriate to use the three-factor model to evaluate the energy industry and five-factor model for high-tech.

KEYWORDS

Asset pricing model, Fama-French model, Energy industry, High-Tech Industry, US Stock Market