Abstract
The primary goal of this study is to investigate the applicability and analytical effectiveness of three models, namely the Capital Asset Pricing Model (CAPM), the Fama-French Three-Factor Model, and the Fama-French Five-Factor Model, within the technology industry. The study focuses on a sample of six representative technology companies, employing monthly data spanning a period of five years from 2018 to 2023. Empirical tests and regression analyses are conducted to empirically assess the performance of these three models. The results demonstrate that the Fama-French Three-Factor Model exhibits superior fitting performance compared to the CAPM model, as initially hypothesized. However, when comparing the fitting performance of the Fama-French Five-Factor Model to the Fama-French Three-Factor Model, the study reveals that the former does not exhibit a significant improvement and even shows a slight decrease in fitting effectiveness. For the technology industry, the Three-Factor Model effectively captures systematic risk and accounts for a sizable proportion of the variation in regressions. Additional factors in the Five-Factor Model might introduce additional complexity without significantly enhancing the model's explaining extent. Overall, this study underscores the importance of model selection and raises awareness about the trade-off between model complexity and explanatory capability, particularly in the technology industry.
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More From: Advances in Economics, Management and Political Sciences
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