Improvement And Empirical Analysis Of Fama-French Three Factor Model

China stock market after 20 years of development,now it has become one of the largest stock market in the world,but because of the development characteristics and characteristics of the development of Western China market stock market is different,whether the modern financial theory based on the western market can adapt to the reality of China is a problem for the Chinese stock market.Since the establishment of the Capital Asset Pricing Model,the model has been tested by the predecessors to the extent of its effectiveness.The model has been a hot topic of research,however,it has not been satisfied with the results.The Fama-French three factor model is a standard model of stock returns determinants proposed by Fama and French in 1992.They argue that the three factors that can explain stock returns include market excess returns,size and book to market ratio.So,whether China's stock market returns can be reasonably explained by the model is still a question worth exploring.Through the research of predecessors,we come to the conclusion that the Chinese stock market is characterized by the lack of good faith and the prevalence of speculation,and that's what leads to a weakening of the explanatory power of the three factor model of the book to market ratio factor.We know that the proportion of tradable shares can reflect the company's economic efficiency,while there are many non tradable shares in China's stock market.From here we can see that the market value of the stock market than the rate of return is a certain explanatory power.In the process of inquiry,we improved the standard Fama-French three factor model,for example,some scholars have tried in the three factor model to join the market value of the ratio of factors for empirical test.The empirical results show that the ratio of the market to market ratio is more explanatory than the factor of book market value.In this paper,we will refer to the previous methods to test the listed companies in Shenzhen A stock market,it is found that the ratio of the market value of the stock market can be more explanatory power than the book market value ratio factor,but the explanatory power is relatively lower than that of the book market value ratio.The results of the improved model are illustrated,the validity of the model needs to be improved.This paper puts forward the main ideas:Referring to the research method of Fama-French three factor model,the paper introduced the multi factor CAPM model in the improved model with the ratio of tradable shares.The process is also used to analyze the listed companies in the A-share market in Shenzhen,we found that:compared with the previous model,the explanatory power of the improved multi factor model has been improved obviously.Therefore,the research results of this paper have a certain reference value for the study of the applicability of the capital asset pricing model in China's stock market.