Research on the Impact of Covid-19 on the Chemistry Industry in US Stock Market based on the Fama-French Five-factor Model

Abstract

The capital asset pricing model (CAPM) and the Fama-French model are of great significance to the study of all aspects of the capital market, which lays the foundation of modern finance. This paper analyzes both data before Covid-19 and after Covid-19, which are daily data with the same time length in the chemistry industry. It finds that Covid-19 makes a significant impact on the chemistry industry due to its negative influence on economics. The data were adopted from Kenneth R. French's database and fitted with the Fama-French five-factor model. After data processing, the T-value used for significant testing and five corresponding coefficients is obtained using multiple linear regression. The results indicated that Covid-19 causes an anomaly because the intercept is significant after the epidemic, a decrease of market sensitivity from changes of market factor, investors’ more attention to the companies that have a good ability to gain profitability by analyzing RMW, and better returns for the companies with high book-to-market ratios due to HML. Besides, SMB and CMA factors are redundant. In conclusion, the influence made by Covid-19 on the chemistry industry is significant, and the investors are recommended to pay attention to companies with robust profitability and high book-to-market.