Study on the Applicability of the Fama-French Three-factor Model and Five-factor Model to the American Biopharmaceutical Industry during the COVID-19 Period

Abstract

At the end of 2019, a huge black swan, COVID-19, came and erupted in 2020. Both our daily life and investment activities are more or less affected by COVID-19, which is a new opportunity and challenge for the biopharmaceutical industry. In order to analyse the current situation of the American biopharmaceutical industry during the COVID-19 period and promote the development of the financial market, the author studied three biopharmaceutical industry funds, selected the data from January 2020 to September 2021, and introduced the three-factor model and the fivefactor model to carry out multiple regression analysis. The results show that during the sample period, both the threefactor model and the five-factor model have strong applicability to the stocks of the American biopharmaceutical industry, which means that all five factors have a strong ability to explain the changes in stock returns of this industry. In addition, the five-factor model has a higher positive correlation and fitting degree for the three funds.