A Comparison between the Accuracy of the Capital Asset Pricing Model (CAPM) and the Fama-French Three-Factor Model in the Vietnam Stock Market during the 2008 – 2017 period

Abstract

Objectives

The main objectives of this study were to assess and compare the accuracy between the CAPM and the Fama – French three-factor model in predicting stock returns patterns in the Vietnam Stock market during the 2008-2017 period.

Summary

The paper collects data from the listed stocks in the Ho Chi Minh Stock Exchange from July 2008 to June 2017 to form the sample. Then, the thesis utilizes Ordinary Least Squares (OLS) regression method to analyze the performance of the CAPM and the Fama – French three-factor model. Additionally, the GRS test is also applied to assess the accuracy of these models.

Conclusions

The findings of the thesis suggest that the CAPM is inaccurate in explaining the stock returns patterns in the Vietnam stock market during the 2008-2017 period while the Fama – French three-factor is demonstrated to be significantly accurate in the same period. Thus, the thesis concludes that the Fama – French three-factor model is more accurate than the CAPM in explaining stock returns patterns in the Vietnam stock market from July 2008 to June 2017. Overall, the thesis contributes to the academia by gaining new insights on the performances between the CAPM and the Fama – French three-factor model as it is conducted in the Vietnam stock market, which is relatively under-researched. Then, the study can help investors or investment managers in choosing an appropriate and efficient model to calculate stocks’ expected returns.