Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)

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Comparison of Explanatory Power of Excess Return between 3-Factor, 4-Factor and 5-Factor Model in China Funds Market

Authors
Yilong Liu1, +, Jingyi Shi2, *, +
1Department of Finance, University of New South wales Sydney, Australia
2Department of Finance Beijing Normal University, Zhuhai Zhuhai, China
+

These authors contributed equally

Corresponding Author
Jingyi Shi
Available Online 26 March 2022.
DOI
10.2991/aebmr.k.220307.416How to use a DOI?
Keywords
Fama-French three-factor model; Carhart four-factor model; Fama-french five-factor model; China’s A-share market
Abstract

The momentum factor was added to the four-factor model as an indicator based on the three-factor model. Fama-French also added RMW and CMA, two factors representing the company’s profitability and investment level, to obtain the five-factor model on the basis of the original three-factor model. Obviously, the explanatory power of each factor model varies from market to market. Especially, China’s capital market is greatly influenced by national macro-control, which makes the fund performance of China’s market different from that of most other countries. As a result, the explanatory ability of which factor model is stronger in China cannot be inferred from the experience of other countries. In this paper, through the data processing of China’s A-share market fund, and the empirical test we do, we found that the impact of RMW factor in China’s market is obvious. As a result, the five-factor model has greater explanatory power to explain the excess return in China’s fund market. Besides, this paper provides some reference for the theoretical and empirical research of asset pricing and factor model.

Copyright
© 2022 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

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Volume Title
Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
Series
Advances in Economics, Business and Management Research
Publication Date
26 March 2022
ISBN
978-94-6239-554-1
ISSN
2352-5428
DOI
10.2991/aebmr.k.220307.416How to use a DOI?
Copyright
© 2022 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

Cite this article

risenwbib
TY  - CONF
AU  - Yilong Liu
AU  - Jingyi Shi
PY  - 2022
DA  - 2022/03/26
TI  - Comparison of Explanatory Power of Excess Return between 3-Factor, 4-Factor and 5-Factor Model in China Funds Market
BT  - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
PB  - Atlantis Press
SP  - 2549
EP  - 2555
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220307.416
DO  - 10.2991/aebmr.k.220307.416
ID  - Liu2022
ER  -