Testing the Fama-French Three-Factor Model on China A-Shares

Summary

This report applies the Fama-French three-factor framework to China’s A-share market, examining monthly evidence from April 2010 through October 2022. It describes the market excess return factor, SMB for company size, and HML for book-to-market, with SMB and HML constructed by sorting stocks on market capitalization and book-to-market. The sample excludes suspended stocks, Beijing Stock Exchange listings, specially treated stocks, and companies with fewer than 240 trading days since listing.

The reported results suggest that the size effect has greater explanatory power than the book-to-market effect in this market. The study also reports notable correlations among the three factors and says the model accounts for returns in 18 of 25 size and book-to-market portfolios, compared with 22 in the cited US results. The authors conclude that these factors alone do not explain A-share return patterns sufficiently. The page summarizes a research report rather than supplying its full methods or tables, so details needed to reproduce the analysis are limited.

Key ideas

• The study applies the market, size, and book-to-market factors to China A-shares over April 2010 to October 2022.
• SMB appears more explanatory in the reported sample than HML.
• The reported factor correlations indicate a meaningful multicollinearity concern.
• The model explains 18 of 25 tested portfolios, fewer than the 22 cited for the US comparison.
• The summary concludes that the three factors do not capture all A-share return patterns.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.