The Comparison between CAPM and FF3 Model: Evidence from America

Yundi Gao; Zhenyu Hu

doi:10.54691/bcpbm.v26i.1997

Authors

Yundi Gao
Zhenyu Hu

DOI:

https://doi.org/10.54691/bcpbm.v26i.1997

Keywords:

Bigdata analysis; CAPM model; Fama-French model; Regression analysis.

Abstract

As the most developed financial market in the world, liquidity in the market remains in a very strong position despite the recent rise in long-end US bond rates. This paper compares the usefulness and characteristics of Capital Asset Pricing Model and Three Factor Model by using the regression model to carry out bigdata analysis from the US market between 2021 and 2022. Based on the analysis, Three Factor Model is better suited to today’s market with the characteristic of variability and uncertainty. However, the concerns raised by previous studies regarding the momentum effect still remain unresolved. In order to enhance the reliability and precision, data spanning a longer period of time should be selected. This paper can be of great help to investors who need to make financial decisions, as it compares the beta of each stock with the beta calculated from two models to find out which model gives a more accurate forecast. Overall, these results shed light on beta evaluation model selection for the state-of-art approaches.

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