The Fama-French Three-Factor Model in China's A-Share Market: An Analysis of Size and Value Premiums Across Bull and Bear Market Cycles, 2010–2024_Vol. 3 No. 3 (JSE 2026)_Journal of Statistics and Economics (ISSN: 3005-5733)

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The Fama-French Three-Factor Model in China's A-Share Market: An Analysis of Size and Value Premiums Across Bull and Bear Market Cycles, 2010–2024

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DOI: https://doi.org/10.62517/jse.202611316

Author(s)

Shengqi Bai

Affiliation(s)

School of Business, Macau University of Science and Technology, Macau, 999078, China *Corresponding Author.

Abstract

This study investigates the regime-dependent performance of the Fama-French Three-Factor Model in China’s A-share market from 2010 to 2024. Given the dominance of retail investors, T+1 trading constraints and distorted book values of SOEs, this paper replaces the conventional B/M ratio with a positive-earnings E/P ratio to construct the value factor. Based on the Pagan-Sossounov market cycle classification and GRS tests, empirical results confirm factor decoupling: the three-factor model effectively explains stock returns in bear markets but loses explanatory power in sentiment-driven bull markets. Market turnover rate verifies that retail speculative trading causes this regime difference. Sub-period comparison reveals that the 2023 IPO registration reform greatly reduces the SMB shell value premium, making the size factor statistically insignificant after 2023. Robustness tests with Amihud liquidity indicators and two portfolio weighting schemes support the conclusions. This research provides behavioral finance evidence for A-share factor pricing and delivers references for asset managers, regulators and cross-border investors, while noting the insufficient post-reform data as a major research limitation.

Keywords

Fama-French Three-Factor Model; China's A-share Market; Size Premium (SMB); Value Premium (E/P Ratio); Market Regimes (Bull & Bear Markets); IPO Registration System Reform; Investor Sentiment

References

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