The Predicting Power of Asset Pricing Models during Market Turmoil
These authors contributed equally.
- DOI
- 10.2991/aebmr.k.220307.379How to use a DOI?
- Keywords
- Asset pricing model; Market turmoil; Stock market
- Abstract
This paper investigates the predictive return power of three asset pricing models during market turmoil: the CAPM, Fama-French 5 factor model, and q-factor model. We select two periods of market downturns: the 2008 financial crisis and the 2020 Covid period. The models are trained before these two periods and tested during the market turbulence. We specifically test the models on 10 stocks with different firm characteristics and compare their difference in performance. Out of three different asset pricing models, we find that the Fama-French five-factor model performs the best, with relatively small prediction error and standard deviation. When facing financial turmoil, the predictive ability of the three models decreases.
- Copyright
- © 2022 The Authors. Published by Atlantis Press International B.V.
- Open Access
- This is an open access article under the CC BY-NC license.
Cite this article
TY - CONF AU - Xinyuan Liu AU - Yunlong Ren PY - 2022 DA - 2022/03/26 TI - The Predicting Power of Asset Pricing Models during Market Turmoil BT - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022) PB - Atlantis Press SP - 2321 EP - 2334 SN - 2352-5428 UR - https://doi.org/10.2991/aebmr.k.220307.379 DO - 10.2991/aebmr.k.220307.379 ID - Liu2022 ER -