A Comparison of Three Asset-pricing Models During COVID-19

Yuxuan Liu

doi:10.54097/hbem.v7i.6935

Authors

Yuxuan Liu

DOI:

https://doi.org/10.54097/hbem.v7i.6935

Keywords:

COVID-19, CAPM, Fama-French three-factor Model, Fama-French five-factor Model.

Abstract

With the shock of COVID-19 pandemic bringing changes to world economy, it is necessary to reexamine the efficiency of models for asset pricing. In this paper, three different financial assets models, namely the CAPM as well as Fama-French (FF) three factor and five factor model, have been applied to provide explanation for the return of pharmaceutical industry of the US during the COVID-19 pandemic. According to the analysis, it is congruent with existing theories suggesting greater explanation capacity of the FF models over the CAPM and in this case, the FF five factor model is superior to the three factor one. However, the FF models are more complex than the CAPM and it takes more time and effort to conduct the calculations. It provides evidence that despite the restructuring of world economy the three models still stand and the FF5 model has the best explanatory power out of the three. These results shed light on guiding further exploration of financial asset-pricing models application in specific times.

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