Advances in Economics, Management and Political Sciences

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Proceedings of the 7th International Conference on Economic Management and Green Development

Series Vol. 37 , 10 November 2023


Open Access | Article

An Empirical Research of Asset Pricing Models in the US Market under COVID-19

Fujia Sun * 1
1 University of Michigan

* Author to whom correspondence should be addressed.

Advances in Economics, Management and Political Sciences, Vol. 37, 91-99
Published 10 November 2023. © 2023 The Author(s). Published by EWA Publishing
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Citation Fujia Sun. An Empirical Research of Asset Pricing Models in the US Market under COVID-19. AEMPS (2023) Vol. 37: 91-99. DOI: 10.54254/2754-1169/37/20231845.

Abstract

Asset pricing theory has been a key area of research in finance. Since the in-troduction of CAPM, asset pricing models have been very widely used. Re-searchers have discovered many phenomena that cannot be explained by the CAPM model, so they have made many refinements to the asset pricing model and developed various improved versions that can better explain stock returns. The Fama and French three-factor model (FFTFM) and the five-factor model (FFFFM) are two of the most classic and most used asset pricing models. However, as time goes by and financial markets continue to evolve, many scholars have questioned whether traditional asset pricing models are still valid. Starting from the theoretical explanation of CAPM, FFTFM, and FFFFM factor selection, this paper uses the stock market data from 2000 to March 2023 to divide stocks into six portfolios based on their size and book value and conduct regressions according to the above three models respectively to evaluate and compare the recent performance of these models. In addition, this paper also performs separate regressions using data from the novel coronavirus epidemic period in particular to verify the robustness of the model to different market environments. According to the results of this paper, the FFFFM model has the best explanatory power. The role of the factors in the model on stock returns varies with portfolio selec-tion, i.e., firm size and book value, and the market environment also has an impact on the significance of the factors, leaving room for improvement in the model to cope with particular markets, but overall, FFFFM is still effec-tive in explaining present market stock prices.

Keywords

asset pricing model, explanatory power, the US stock market

References

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Data Availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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Volume Title
Proceedings of the 7th International Conference on Economic Management and Green Development
ISBN (Print)
978-1-83558-095-0
ISBN (Online)
978-1-83558-096-7
Published Date
10 November 2023
Series
Advances in Economics, Management and Political Sciences
ISSN (Print)
2754-1169
ISSN (Online)
2754-1177
DOI
10.54254/2754-1169/37/20231845
Copyright
© 2023 The Author(s)
Open Access
This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited

Copyright © 2023 EWA Publishing. Unless Otherwise Stated