The examination of Fama-French Model during the Covid-19

•Examine the R2 of a Fama-French five-factor model and represent a robustness test using GMM in the selected crises including Covid-19.•The R2 of growth portfolios decreases rapidly during the Financial crisis of 2008.•The Covid-19 outbreak has led to a substantial drop in the R2 during this event.•...

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Bibliographic Details
Published in:Finance research letters 2021-07, Vol.41, p.101848-101848, Article 101848
Main Authors: Horváth, Dominik, Wang, Yung-Lin
Format: Article
Language:English
Subjects:
Dividend discount model
International asset pricing
Multifactor models
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Summary:•Examine the R2 of a Fama-French five-factor model and represent a robustness test using GMM in the selected crises including Covid-19.•The R2 of growth portfolios decreases rapidly during the Financial crisis of 2008.•The Covid-19 outbreak has led to a substantial drop in the R2 during this event.•All of the beta model parameters are insignificant in the GMM model. This paper evaluates the performance of Fama-French models on US stock markets during the selected events by studying the R2 of the models. We find that the influence of Dotcom bubble to the R2 of growth model is statistically significant. The R2 of growth portfolios decreases rapidly during the Financial crisis of 2008. The latest Covid-19 outbreak drop has led to a substantial in the R2 during this event. Furthermore, we find that all of the beta model parameters are insignificant in the GMM model.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2020.101848