Comparative Research On The Effectiveness Of Fama-french Five-factor Model In A-share Market

The pricing problem of portfolios has always been an important direction in the research of the financial sector.It aims to explain the impact factors of stock returns from the perspective of the relationship between risks and benefits,and the latest research results of asset pricing models are from Fama and French(2015).The Fama-French five-factor model proposed based on the three-factor model.China's stock market has been established since the end of 1990.After more than 30 years of development,A shares have become the world's second largest market capitalization stock market.In the rapid development of China's economy,the direct financing function of the stock market has played a powerful role in boosting.However,high volatility,speculation and information distortion in the stock market are also highly concerned.From the perspective of asset pricing,this paper attempts to use the Fama-French five-factor model to explain the cross-sectional income changes of China's A-share Shanghai and Shenzhen main board,Small and Medium Enterprise board and Growth Enterprise Market stocks,due to the different market conditions of the A-share stock market in China and the quality of listed companies.There are many differences in aspects,so we look for factors that affect the stock returns of different sectors,study and analyze the effectiveness and difference of the five-factor model of each sector,and become a research topic with both theoretical and practical value.This paper chooses a total of 84 months' data from May 2011 to April 2018 in Shanghai and Shenzhen Main Board,SME Board and GEM stock market as the research object.This is because China's GEM were formally established on October 30,2009.In order to rule out the abnormal fluctuations in the IPO data of the initial GEM stocks,the sample data of this article will start in 2011.Using the annual financial data and monthly market data of listed companies,the five factors of market,size,book-to-market ratio,profit and investment are constructed.At the same time,the benchmark portfolio is constructed at the end of April each year,and the combined monthly excess return rate is calculated.Then,During the construction period of the portfolio,factor regression was used to explain the excess return rates of different months in the portfolio,and the intercept terms and the coefficients of different factors were obtained.Through the empirical test,the results will be obtained: The Fama-French five-factor model can well explain the fluctuations in the yield of the Shanghai and Shenzhen Main Board and GEM stock market,and cannot explain SME Board(The analysis results from the distance and GRS test).The market factor RR-fm has a significant positive impact on the yields of these three types of stock markets,and the coefficients are close to 1,indicating that these three types of stocks are sensitive to changes in the market environment.Among them,the most sensitive one is Shanghai and Shenzhen Main Board stock market.Second,GEM stock market,and finally SME Board.The scale factor SMB has a significant effect on the yield of Shanghai and Shenzhen Main Board stock market;it has a significant effect on the yield of the small-cap stock portfolio in SME Board;in GEM stock market,the scale factor SMB is mainly for the low-scale stock portfolio.The rate of return has a significant boost.The book value-to-market ratio HML factor has a significant negative impact on the yield of the Shanghai and Shenzhen Main Board stock market;there is no significant impact on the yield of SME Board and GEM stock market.The profit factor RMW has a negative impact on the yield of the three types of stock markets,and the negative trend is mainly concentrated in the low-scale portfolio,it shows that profit factor RMW has a significant negative effect on low-scale portfolio,This may be because the listed company's stock price has already reflected the profit forecast earlier,and the Chinese investors are mostly individual investors,the listed company's financial report is weak,and the investment decision preference is smaller.And investment factor CMA has a significant negative effect on the yield of Shanghai and Shenzhen Main Board stock market;it has no significant effect on the stock returns of SME Board and GEM stock market.This paper uses the Fama-French five-factor model to empirically analyze the Shanghai and Shenzhen Main Board,SME Board and GEM stock market,and study the effectiveness of the five-factor model in each sector of a-shares,and compare and analyze the impact factors of the stock returns in each sector of the a-share market,and provide effective help for investors to choose investment portfolios,hedge risks,invest in various index funds such as CSI 300 Index Fund,SME Board and GEM ETF.At the same time,it can also provide effective policy recommendations for the deepening reform of the three sectors of the a-share market.