Portfolio Construction in Terms of APPL Based on Fama and French Five-factor Model

Abstract

In the contemporary world, research has been working towards creating a model that can better explain the relationship between financial investment and risk. Iterative financial models such as CAPM, Fama French three factor model (FF3F) are strengthening the explanatory power of the extra investment risk of portfolio investments. Nevertheless, due to the global pandemic, the variability of the explanatory power of financial analysis models in the stock market has become more fickle. The objective of this paper is to analyze the portfolio investment data of Apple, one of the world's largest high technology companies, from 2017 to 2022 using the Fama French five factor model (FF5F) to determine whether the model still has strong explanatory power on the stock market during the pandemic. According to the analysis, the FF5F model coefficients still robust in explaining Apple's stock markets over five-year global pandemic period. It seems as if the epidemic and similar force majeure factors do not affect the explanatory efficiency of the model, but it is unknown that whether the actual impact is not captured by the FF5F model. The results of this study based on the FF5F model shed lights for reducing portfolio investment risks.