Research on the investment efficiency of each factor in A-share market——Take CAPM, FF three factor and FF five factor models as examples

Abstract

This paper mainly studies the effectiveness of factor investment represented by CAPM, FF three factor model and FF five factor model in A-share market. Since the birth of factor investment in the middle of the last century, it is fashionable and short. When focusing on China, the superiority of each model is controversial. In this paper, we took the stock reform limit board as the boundary, we selected the data from 1997 to 2020 to study the significance of CAPM, FF three factor, FF three factor and profit factor (RMW) or investment factor (CMA), FF five factor models. Through the redundancy factor test, it is concluded that each factor plays an important role, and the role of investment factor (CMA) is relatively small. In addition, in the case of univariate grouping and bivariate grouping, different factor models are used to adjust the excess return. It is found that CAPM, FF three factor model and FF five factor model are applicable to China's A-share market. FF three factor model and FF five factor model are continuous supplements to CAPM model, making it more comprehensive and effective. And the market factor is the most significant, representative and dominant. Compared with the FF three factor model, the addition of the profit factor (RMW) and the investment factor (CMA) in the FF five factor model will weaken the significance of the market value factor (SMB) in the original FF three factor model.