Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/194322 
Year of Publication: 
2017
Citation: 
[Journal:] China Finance and Economic Review [ISSN:] 2196-5633 [Volume:] 5 [Issue:] 7 [Publisher:] Springer [Place:] Heidelberg [Year:] 2017 [Pages:] 1-19
Publisher: 
Springer, Heidelberg
Abstract: 
Background: Fama and French propose a five-factor model that contains the market factor and factors related to size, book-to-market equity ratio, profitability, and investment, which outperforms the Fama-French Three-Factor Model in their paper in 2014. This study investigates the performance of Fama-French Five-Factor Model and compare with that of Fama-French Three-Factor Model on Chinese A-share stock market. Methods: Portfolios are constructed following Fama and French method. The OLS is applied to running time-series regressions; the t-statistics of regression coefficients are corrected for heteroscedasticity and autocorrelation using the Newey-West estimator with five lags. Results: The empirical results show that Fama-French Five-Factor Model explanatory power has differences among different sets of portfolios. In comparison with Fama-French Three-Factor Model, the presence of profitability and investment factors seem not to capture more variations of expected stock returns than the three-factor model except for six value-weighted portfolios formed on size and operating profitability. Conclusions: Profitability and investment factors do not have much additional explanatory power, and Fama-French Five-Factor Model does not have significant improvement in explaining average excess stock returns comparing with the original three-factor model on Chinese A-share stock market, which is inconsistent with the findings on US stock market.
Subjects: 
Profitability factor
Investment factor
Fama-French Five-Factor Model
Chinese A-share stock market
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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