Su Zhang

Abstract

This research investigates the applicability and effectiveness of the Fama-French model within the Chinese stock market. While the Fama-French model is extensively used in asset pricing, its performance in emerging markets like China remains insufficiently explored. The Chinese stock market is characterized by unique features such as the prevalence of state-owned enterprises, a high number of retail investors, market segmentation, government intervention. These elements may impact the traditional Fama-French model's explanatory power, necessitating modifications and adjustments.The thesis tests the Fama-French five-factor model's applicability in China's A-share market (2006–2023) by adding a risk (RISK) factor. Using monthly data, it constructs portfolios sorted by size, value, profitability, and investment. Statistical methods (correlation, collinearity, GRS tests) evaluate the model's explanatory power, finding the six-factor version improves performance. The data used in the study come from the China Stock Market & Accounting Research Database (CSMAR) transaction database. The data comes from the Shanghai Stock Exchange, Shenzhen Stock Exchange. As of the end of 2023, the Shanghai Stock Exchange (SSE) had 2,263 listed companies, and the Shenzhen Stock Exchange (SZSE) had 2,844 listed companies.The empirical analysis reveals that the traditional Fama-French five-factor model has limitations in explaining returns in the Chinese stock market. Introducing new risk factors, significantly enhances the model's explanatory power. The new factors capture unique market behaviors and risks specific to the Chinese market, improving the model's accuracy in reflecting stock return variations.The study benefits policymakers by improving market regulation and risk management, helps investors refine pricing models and portfolio strategies, and advances research on asset pricing in emerging markets, enhancing financial decision-making and fostering a more efficient Chinese stock market.Overall, this study enhances asset pricing by introducing a risk factor, improving the Fama-French model's accuracy in China. The six-factor model benefits investors, policymakers, and researchers, guiding regulations, and suggesting future research on emerging markets' pricing dynamics.Keywords: Fama-French model, Chinese stock market, multi-factor model.

Awarding Institution(s)

University of Plymouth

Supervisor

Peijie Wang, Jonathan Moizer

Keywords

fama-french model

Document Type

Thesis

Publication Date

2025

Embargo Period

2025-07-15

Deposit Date

July 2025

Comments

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Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

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