The Empirical Test of the Fama–French Three-Factor Model in the Chinese Stock Market
DOI:
https://doi.org/10.61173/txdkcw97Keywords:
Fama–French three-factor model, CAPM, size effect, value effect, Chinese stock market, asset pricingAbstract
This paper examines the applicability of the Fama–French (1993) three-factor model in China’s A-share market. Using monthly data from September 1999 to June 2022, we estimate time-series regressions of excess returns on six representative Chinese A-share stocks on the market factor, the size factor, and the value factor. The evidence shows that the market factor is highly significant for all six stocks, the size factor is significantly positive for four of them, while the value factor is not statistically significant in any case. All estimated intercepts (alphas) are large and negative. These results suggest that the Fama–French three-factor structure captures important market and size-related components of risk in the Chinese stock market but does not fully reconcile realised returns with model-implied expected returns.
References
Banz, Rolf W., 1981, The relationship between return and market value of common stocks, Journal of Financial Economics 9, 3–18.
Basu, Sanjoy, 1983, The relationship between earnings yield, market value, and return for NYSE common stocks: Further evidence, Journal of Financial Economics 12, 129–156. Bekaert, Geert, and Campbell R. Harvey, 1995, Time-varying world market integration, Journal of Finance 50, 403–444. Black, Fischer, Michael C. Jensen, and Myron Scholes, 1972, The capital asset pricing model: Some empirical tests, in Michael C. Jensen, ed.: Studies in the Theory of Capital Markets (Praeger, New York).
Fama, Eugene F., and Kenneth R. French, 1992, The cross-section of expected stock returns, Journal of Finance 47, 427–465.
Fama, Eugene F., and Kenneth R. French, 1993, Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3–56.
Fama, Eugene F., and Kenneth R. French, 2015, A five-factor asset pricing model, Journal of Financial Economics 116, 1–22.
Fama, Eugene F., and James D. MacBeth, 1973, Risk, return, and equilibrium: Empirical tests, Journal of Political Economy 81, 607–636.
Harvey, Campbell R., 1995, Predictable risk and returns in emerging markets, Review of Financial Studies 8, 773– 816.
Hou, Kewei, Chen Xue, and Lu Zhang, 2015, Digesting anomalies: An investment approach, Review of Financial Studies 28, 650–705.
Jegadeesh, Narasimhan, and Sheridan Titman, 1993, Returns to buying winners and selling losers: Implications for stock market efficiency, Journal of Finance 48, 65–91.
Lintner, John, 1965, The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets, Review of Economics and Statistics 47, 13–37. Rosenberg, Barr, Kenneth Reid, and Ronald Lanstein, 1985, Persuasive evidence of market inefficiency, Journal of Portfolio Management 11, 9–17.
Sharpe, William F., 1964, Capital asset prices: A theory of market equilibrium under conditions of risk, Journal of Finance 19, 425–442.
Stattman, Dennis, 1980, Book values and stock returns, The Chicago MBA: A Journal of Selected Papers 4, 25– 45.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 by the authors.
This work is licensed under a Creative Commons Attribution 4.0 International License.
