The Research of Fama-French Three-factor Model’s Applications in the Chinese Stock Market after the Financial Crisis

Abstract

Nowadays, arguments about the three-factor model by Fama and French are becoming more and more various. In contrast, the effect that this model generates in China's stock market is still not confirmed. This study employed the three-factor model to determine factors that have a big influence on the Chinese stock market and tell whether the three-factor model applies to the Chinese stock market. The regression between the portfolio returns and three factors was explored in the procedure of this study. As a result, we obtain that the market risk plays an important role in determining the price of stocks. However, the "big company effect" also exists, and elements affecting the stock pricing had not been all explained with the model used, which revealed that the existence of other potential factors also affects stock pricing.