Exploring Fama-French Five-Factor Model on Chinese A-Share Stock Market

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Motivated by the valuation theory and recent empirical findings on the strong profitability and investment effects in asset returns. Fama and French propose a five-factor model 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 2014. This paper explores Fama-French Five-Factor Model on Chinese A-Share Stock Market and the empirical results show that the explanatory power of profitability and investment factors differs among different sets of portfolios. In comparison with Fama-French Three-Factor Model, the presence of profitability and investment factors RMW and CMA seem not capture more variations of expected stock returns than the original three-factor model at least for Size-B/P portfolios; there is no significant evidence that Fama-French Five-Factor Model performs better than Fama-French Five-Factor Model on Chinese A-share stock market over the research period.

Author(s):

Wenting Jiao    
IGR-IAE, Université de Rennes 1
France

Jean-Jacques Lilti    
IGR-IAE, Université de Rennes 1
France