Research on the Applicability of Fama-French Three-Factor Model of Electric Power Industry in Chinese Stock Market Yield Prediction

Abstract

Fama-French Three-Factor model (FF3), as a representative of multifactor asset pricing models, is an improvement of CAPM. For a long time, China’s electric power enterprises have widely used the CAPM in the process of investment decision-making. While the internal and external environment of China’s electric power industry is undergoing great changes in recent years, the applicability of the CAPM need further research. This article selects the stock data of Chinese electric power industry in the stock market during 2007-2013, then uses CAPM and Fama-French three factors model respectively to conduct regression analysis with the stock yield data, and compare the applicability levels of the two models, thus access the applicability of Fama-French three factors model, the purpose is to find a suitable stock market yield prediction model for the present China’s power industry.