The Fama-French Three Factors in Chinese Stock Market
China Accounting and Finance Review, 2014, Volume 16, Issue 2, 210-227
18 Pages Posted: 21 Dec 2013 Last revised: 8 Dec 2014
Date Written: March 2, 2014
Abstract
China is the largest emerging market and attracts a great deal of attention from investors and researchers worldwide. The Fama-French three-factor model is the outcome of decades of research on U.S. stock returns. To what extent the three factors explain the variation in Chinese stock returns is an intriguing question. This paper documents empirical evidence on this issue and identifies some pitfalls that arise in the application of the three-factor model to Chinese stock returns. We find that several special features in China affect the three factors considerably and also influence the explanatory power of the three-factor model.
Keywords: Chinese stock market; Non-tradable shares; Three-factor model; Value premium
JEL Classification: G11, G12, G15
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