Optimal Application of ESG Indicators and Traditional Five-Factor Indicators in China's Investment Market
DOI:
https://doi.org/10.54097/bn4d5f87Keywords:
Fama-French five-factors, ESG, Asset pricing, China stock market.Abstract
Based on the A-share listing formula from May 2000 to April 2023, this paper examines the application of the traditional five-factor model and the new five-factor model with ESG in China's investment market. It is found that the five-factor model in China's stock market has a very strong explanatory ability, but there are also certain shortcomings, such as the role of the CMA factor of investment ability is not significant, so the empirical design of replacing the CMA factor with ESG factor is proposed, and a variety of grouping methods are proposed in the design of ESG factors, and finally the new factor model with ESG is compared with the traditional five-factor model through a large number of empirical data and GRS test, and the new factor model with ESG has stronger explanatory ability.
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