A Comparative Analysis of the Fama-French Five-Factor Model -- Based on the Data of China’s SME Board

Abstract

The five-factor model by Fama-French was obtained by adding the profitability factor (RWM) and the investment factor (CMA) to the three-factor model by Fama-French. It is still the first paradigm for asset pricing model research to imitate and compare. In the case of the Chinese stock market, there is no consensus on whether the five-factor model explains the anomalies better than other models, and there is a lack of comparative studies on asset pricing models for specific markets such as the SME. Based on the empirical analysis of trading data and financial data of the SME baord, this paper compares the explanatory abilities of the Fama-French five-factor model with four other mainstream models on factors and market anomalies, and provides new and feasible development ideas for the research of asset pricing models for specific markets. The findings of this paper are valuable for the construction of value investment strategies for Chinese small and mid-cap stocks, the empirical study of the effectiveness of market-specific asset pricing models, and the prediction of development trends in ChiNext and NEEQ.