The Applicability Test And Analysis Of Multi-factor Model In China’s "Carbon Neutral" And Its Related Sectors Of A-share Market

One of the most important topics in finance is how to price assets reasonably,and the basic idea of this topic is to predict the expected return of asset from the perspective of risks faced by it.Nowadays,many scholars begin to test the potential risk factors in the market based on Fama-French three factor model,and on this basis,expand it.For example,the composite three-factor model with behavioral factors given by Daniel,Hirshleifer and Sun(DHS composite three-factor model),Liu,Stambaugh and Yuan’s three-factor model based on Chinese market(Chinese version of the three-factor model)and so on.The addition of these factors enables the model to explain the excess returns in the stock market more effectively.Recently,with the increasing popularity of the term "carbon neutrality",photovoltaic power generation,new energy vehicles and other sectors have attracted much more attention than before.However,due to problems such as imperfect development and insufficient market effectiveness existing in security market in China,asset can hardly be priced on a reasonable level.Therefore,this paper aims to study the applicability of Fama-French five-factor model,DHS composite three-factor model and the Chinese version of three-factor model in "carbon neutrality" sector and its related ones.This article selects stocks from “carbon neutrality” sector and the related ones,for a total of 138 months from January 2010 to June 2021 as samples.The empirical analysis of this paper can be divided into two parts.The first part uses regression analysis to explore the applicability of the Fama-French five-factor model,the DHS composite three-factor model and the Chinese version of the three-factor model in "carbon neutrality" sector and its related ones.The second part compares the above three models by using the significance of the model intercept term,the explanatory power among the factors,and the ability to explain anomalies,and obtains the most suitable asset pricing model for "carbon neutrality" sector and its related ones at last.Through empirical tests,the following conclusions can be drawn.Firstly,the Fama-French five-factor model,the DHS composite three-factor model and the Chinese version of the three-factor model can all effectively explain the excess returns in “carbon neutrality” sector and its related ones.Secondly,when analyzing the Fama-French five-factor model,it is found that the scale factor and the value factor are significant,which can explain the excess returns of "carbon neutrality" sector and its related ones to a certain extent,however,the profit factor and investment factor are insignificant in the subsequent overall significance test and group significance test.Therefore,this paper believes that the Fama-French three-factor model can more concisely explain excess return in "carbon neutrality" sector and its related sectors.Thirdly,in the empirical test of DHS composite three factor model,it is found that the impact of stock repurchases and announcement on enterprises varies with the market value of enterprises.Fourthly,in the test of the Chinese version of the three-factor model,it is found that the value of "shell" does not significantly exist in "carbon neutralization" and its related ones.Lastly,based on the above conclusions,this paper compares the selected models and finds that the Fama-French three-factor model can explain the most anomalies.Therefore,this paper believes that the Fama-French three-factor model is more suitable for "carbon neutrality" sector and its related sectors.