Comparison on Asset Pricing Models: Application of CAPM, Fama-French 3 factors model and Fama-French 5 factors model

Hantao Jia

doi:10.54691/bcpbm.v40i.4367

Authors

Hantao Jia

DOI:

https://doi.org/10.54691/bcpbm.v40i.4367

Keywords:

Asset pricing model; CAPM; Fama-French 3 factors model; Fama-French 5 factors model; Chinese stock market.

Abstract

There are many mainstream models in the academic community, such as CAPM, Fama-French 3 factors model, Fama-French 5 factors model. Chinese stock exchange since its establishment in 1990, has had more than 30 years of development. Nowadays, Fama-French 3 factors model is commonly considered as a more suitable model. However, because of the difference between the Chinese and American markets. The practical application of the models mentioned above in the Chinese market remain to be verified. This paper gathers the monthly data of stocks traded in the Shanghai Stock Exchange from 2002 to 2022 and the annual report data of its corresponding companies, follows the construction method of the model, compares the application of each model. As a result, Fama-French 3 and 5 factors model both have good performance in the sample. MKT and HML factors have significant influence in the model. But the CMA factor may be less satisfied in this market, and further discussion is required.

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