Article

China Accounting and Finance Review

, 16:16

First online:

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The Fama-French Three Factors in the Chinese Stock Market

  • Jin XuAffiliated withSchool of Accounting and Finance, Faculty of Business, The Hong Kong Polytechnic University Email author 
  • , Shaojun ZhangAffiliated withSchool of Accounting and Finance, Faculty of Business, The Hong Kong Polytechnic University

Abstract

China is the largest emerging market and attracts a great deal of attention from investors and researchers worldwide. The Fama-French three-factor model is the outcome of decades of research on US stock returns. To what extent the three factors explain the variation in Chinese stock returns is an intriguing question. This paper documents empirical evidence on this issue and identifies some pitfalls that arise in the application of the three-factor model to Chinese stock returns. We find that several special features in China affect the three factors considerably and also influence the explanatory power of the three-factor model.

Keywords:

Chinese Stock Market Non-Tradable Shares Three-Factor Model Value Premium