Analysis of U.S. industries based on Fama-French five-factor model under COVID-19

Authors

  • Weixuan Huang
  • Jiaqi Wang
  • Kaidi Zhu

DOI:

https://doi.org/10.54691/bcpbm.v36i.3382

Keywords:

Fama-French five-factor model; U.S. industries; COVID-19.

Abstract

At the end of 2019, COVID-19 swept the world, and the United States was also hit hard. The epidemic is not only a public health crisis, but also an economic crisis. Human beings’ lifestyles have undergone tremendous changes, such as reducing dine-in meals and suspending travel plans. Meanwhile, service industry that relies on interactions between customers and suppliers has been hit hard due to controlling of social distancing. This paper intends to explore the effectiveness of the Fama-French five-factor model in various industries in the United States under COVID-19 and find the changes the epidemic has brought. This paper will perform multiple regression analysis on the daily data of the five factors and industry stock portfolios obtained from the Kenneth R French database to obtain relevant results, and further analyze the model. The results show that the fitting degree of the model to the industries has improved after the epidemic. The HML factor of the service industry and the CMA factor of the paper industry have changed from significant to insignificant, while the RMW factor of the meal industry has changed from an insignificant factor to a significant one. These results reflect changes in the explanatory power of different factors for different industries under the epidemic, which reflect the severe impacts of COVID-19 on various industries in the United States, and provide new insights to better understand the Fama-French five-factor model.

Downloads

Download data is not yet available.

References

W. F. Sharpe, "Capital asset prices: A theory of market equilibrium under conditions of risk." The journal of finance, vol. 19.3, 1964, pp. 425-442.

E. F. Fama, and K. R. French. "The cross‐section of expected stock returns." the Journal of Finance, vol. 47.2, 1992, pp. 427-465.

E. F. Fama, and K. R. French. "A five-factor asset pricing model." Journal of financial economics, vol. 116.1, 2015, pp. 1-22.

C. C. Martins, and W. E. Jr. "Pricing Assets with Fama and French 5-Factor Model: a Brazilian market novelty." 15o Encontro Brasileiro de Finanças 2015.

G. V. Nartea, C. Gan, and J. G. Wu. "Persistence of size and value premia and the robustness of the Fama-French three-factor model in the Hong Kong stock market." Ssrn Electronic Journal, vol. 5, 2010, 4.

C. Gaunt, "Size and book to market effects and the Fama French three factor asset pricing model: evidence from the Australian stockmarket." Accounting & Finance, vol. 44.1, 2014, pp. 27-44.

N. Cakici, "The Five-Factor Fama-French Model: International Evidence." Social Science Electronic Publishing, Available at SSRN 2601662, 2015.

S. K. Acaravc, et al. "The Comparative Performance Evaluation of the Fama-French Five Factor Model in Turkey." Isletme ve Iktisat Calismalari Dergisi, 2018.

U. Munawaroh, and S. Sunarsih. "The effects of Fama-French five factor and momentum factor on Islamic stock portfolio excess return listed in ISSI." Jurnal Ekonomi dan Keuangan Islam, vol. 6.2, 2020, pp. 119-133.

K. R. French, Kenneth R. French Data Library. Kenneth R. French - Data Library. Avaliable at: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.

Y. Feng, et al. "Analysis of US Sector of Services with Fama-French 5-Factor Model During the Covid-19." 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021). Atlantis Press, 2021

Downloads

Published

2023-01-13

How to Cite

Huang, W., Wang, J., & Zhu, K. (2023). Analysis of U.S. industries based on Fama-French five-factor model under COVID-19. BCP Business & Management, 36, 32–39. https://doi.org/10.54691/bcpbm.v36i.3382