Empirical Evidence Of Fama-French Three Factor Model And Improved Model In Chinese A-stock Market

Capital asset pricing model is the main content of modern financial economics,which aims to study and determine the price of assets with uncertain future returns from the perspective of risk and return.The study of asset pricing model is of great significance to the development of various market entities and the whole national economy.However,as people's understanding of the formation mechanism of asset prices is not complete,it is difficult to come up with an asset pricing model that can fully describe the systematic changes of asset prices.The capital market in the United States started early and developed many farreaching asset pricing theories.The classic CAPM model simply depicts the relationship between the expected rate of return of assets and the risk under the market equilibrium state through a single factor model.But a large number of empirical studies suggest that it leaves out other patterns in the rate of return.In turn,ICAPM and APT expand stock risk from a single factor to multiple factors.Under the framework of multi-factor pricing concept,Fama-French three-factor model,q factor model and Fama-French five-factor model have become asset pricing models that can better explain the systematic change patterns of stock returns in different periods,providing a powerful tool for the research and practice of the capital market in the United States.Based on the Fama-French three-factor model,this paper investigated the applicability of the Fama-French three-factor model in the current Chinese stock market,compared it with the CAPM model,and finally expanded the risk factors in three aspects to try to improve the three-factor model to find a model suitable for the Chinese stock market.In this paper,the weekly trading data of all Shanghai and Shenzhen a-share data(except gem)companies in the 10 years from the beginning of January 2009 to the end of December 2018 are selected for research and analysis.The research results show that there is A "low book-to-market ratio effect" in China,and compared with CAPM model,Fama-French three factors perform better in the degree of fitting.Later in the study,in this paper,new to three factors,respectively is the momentum factor(turnover rate),quality factor(asset-liability ratio),and growth factors(operating income growth rate),found in three factors can improve the excess returns of stocks,and further,through GRS inspection in overall factor compared to the other two factors have more contribution to the force,has more value.