The Applicability Of Fama-French Multi-factor Model In China's Stock Market

The early 90s of last century.China has set up the Shanghai Stock Exchange and Shenzhen Stock Exchange,marking the official start of China's securities market.Today,after just over 20 years of development,China's stock market has grown into the capital market with the second largest market capitalization in the world,occupying a pivotal position in the emerging capital markets and even the global capital markets.In recent years,with the rapid development of financial market in our country.especially since 2006.the reform of share-trading structure has been implemented.Our country's capital market is accelerating and maturing.However,the maturity of China's stock market is still in line with that of developed western capital markets A certain gap.From the proposal of Markowitz's portfolio theory in 1952 to the proposal of William Sharp Capital Asset Pricing Model in 1964 and the Fama-French three-factor model in 1992.the research on asset pricing model by domestic and foreign scholars has never been studied Stop In 2015.Fama and French proposed a five-factor asset pricing model based on the three-factor model.Although many foreign scholars confirmed the applicability of the five-factor model through empirical research.due to the fact that the main features of the stock market in our country are similar to the western developed capital The market is hugely different.Therefore,whether the modem financial theory based on the western free-market economy can be applied to the actual situation of China's stock market still deserves our further study.Therefore,this paper selects all the stocks in China's A-share market between January 2012 and December 2016 as the research samples,and uses the market transaction data of the listed companies and its annual financial report data to construct the five factors in the model(Market factor,market capitalization factor,book-to-market ratio factor,profitability factor and investment level factor,respectively)and the benchmark investment portfolio to test the applicability of the Fama-French five-factor model in China's A-share market through empirical research.The applicability of the model is compared.After empirical tests,this paper draws the following conclusions:scale factor,value factor.profitability factor and investment factor all have some explanatory power to the average return rate of China's stock market portfolio,among which the scale effect,profitability effect and investment scale Although the five-factor model is superior to the three-factor model in its applicability to the A-share market.the absolute value of the intercept term a is still relatively large.However,The five-factor model does not fully explain the excess return rate of the stock portfolio.There are other risk factors in the capital market that can affect the average yield of the stock portfolio.Therefore,in the future,we also need to continually explore and study other risk factors that can affect the yield of China's A-share market,so as to construct a more accurate and more appropriate asset pricing model for the Chinese capital market.