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The Test of CAPM and Fama-Franch Three-factor Model on China A-shares
- 1 School of Economics and Finance, Central University of Finance and Economics, Beijing, 100081, China
* Author to whom correspondence should be addressed.
Abstract
William Sharpe et al. proposed the CAPM model in 1964, but subsequent empirical studies showed that the CAPM model still had limitations in practical application. In 1993, Fama and Franch proposed the three-factor model, which can explain the future return of the stock portfolio through the company size, the BM ratio of the companies, and express the excess return of a portfolio in the form of three factors. Based on the CAMP and Fama-French three-factor model, this study will use daily trading data of the constituents of the SSE 50 Index to analyze the A-share market by employing the market value factor, company size factor, and BM factor as explaining variables, so as to verify whether the CAPM and Fama-Franch three-factor model is suitable for China A-shares market. The final empirical results show that the CAPM model is applicable to China A-share market, but the validity test of the Fama-Franch three-factor model has not passed completely, that is to say, only in some industries, the Fama-Franch three-factors model can be effectively used.
Keywords
CAPM, Fama-Franch three-factor model, SMB, HML, SSE 50 Index
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Cite this article
Zhang,Q. (2024). The Test of CAPM and Fama-Franch Three-factor Model on China A-shares. Advances in Economics, Management and Political Sciences,125,191-196.
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The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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Volume title: Proceedings of the 8th International Conference on Economic Management and Green Development
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