The Empirical Research Of Fama-French Five-factor Model In The Valuation Of Internet Listed Enterprises

Since the birth of the Internet,it has changed the way people produce and live.By the end of 2016,the number of Internet users in China reached 731 million,and the Internet penetration rate reached 53.2%.In the new era,the development of Internet companies occupies an important position in China’s economic development.The Internet and related service industry has developed from the growth stage to the industry integration period.Corporate restructuring and investment and financing needs require objective and fair business valuation.The income approach is often used to estimate the value of Internet and related services companies.At present,the most commonly used model to determine the discount rate is the capital asset pricing model.The CAPM model only considers market risk,does not show the influence of internal factors on the company’s profitability.This article attempts to use the Fama-French five-factor model to optimize the CAPM model.Fama and French added more factors into CAPM.First,they added scale factor SMB and book market value ratio factor HML to construct a three-factor model.Then they added profitability factor RMW and the investment style factor CMA to construct a five-factor model.This paper studies the development process and core basic theory of Fama-French five-factor model.In the empirical part,this paper uses the sample data of 53 companies in the Internet and related services during the period from January 2011 to November 2017 to empirically test the applicability of the Fama-French five-factor model in the industry.In the empirical process,we use the capital asset pricing model,the Fama-French three-factor model,and the Fama-French five-factor model to do the empirically test.The regression results are used to compare the three models’ explanatory power of the sample data returns.The empirical results show that the five-factor model has a certain degree of explanatory power on the returns of Internet and related service companies,but it has weak explanatory power on returns of small-scale groups and individual groups in large-scale groups.Compared with the three-factor model,the five-factor model has slightly stronger explanatory power of the Internet and related services companies’ returns.The difference mainly comes from the profitability factor.The five-factor model’s explanatory power on the returns of Internet and related services companies is higher than that of CAPM.This explanatory power difference comes from the scale factor and the investment style factor.