Impact of Covid-19 on U.S. Fun Industry based on Fama and French Five-Factor Model

Abstract

As the Covid-19 pandemic sweeping the globe in 2020, it had a profound impact on the economic circumstances of the world. This paper applied Fama-French five-factor model to evaluate the influence of the Covid-19 on the fun industry in America. The fun industry’s data and daily return data from Kenneth R.French’s database were adopted to make multiple linear regression. The difference of coefficients of the five factors illustrates the significant changes in the entertainment industry due to the pandemic. The sensitivity to the market risk increased as the coefficients of MKT added from 0.73 to 1.02. The income effect of small companies has gradually been higher than that of large-cap companies as coefficients of SMB reached 0.99 from 0.54 during the pandemic. Stocks of fun company with a high book-to-market ratio performed better in general during the covid-19 as the HML factor became significant with a positive value of 0.66. The firm’s operating profitability has become a crucial factor in investors’ decisions for the entertainment industry under the uncertainty provided by the Covid-19 pandemic as the RMW factor became significant with a positive value of 0.65. Investors are more willing to put their money into the aggressive companies as CMA factor became substantial with a negative value of -2.44.