Author(s)

Hang Shu, Xiaoxi Wu

Corresponding Author

Hang Shu

ABSTRACT

Asset pricing models are usually used to determine a theoretically rate of return of a particular asset, in order to make decisions about the investments in diversified portfolio. This study focuses on testing the Fama French 3-factor (FF3) and 5-factor (FF5) models in the US food product industry and semiconductor industry by applying multiple linear regression analysis on daily excess return of the industry stock portfolios from July 2005 to June 2020. Each models’ goodness of fit in these industries are demonstrated by the results. By comparing the coefficients of each factor in the FF models, this paper has focused on five essential factors with respect to industrial sensitivity: market, size, book-to-market ratio, profitability and investment style. In general, the food product industry appears to be more inclined to the large size and robust profitability of companies, whereas the chips industry is more dependent on good economy condition and aggressive investment style. Also, the profitability factor in chips industry is worth noticing since it is a redundant factor, suggesting the return of this industry portfolio is unrelated to firms’ profitability. Accordingly, the investment advice is proposed based on the analysis: large-size food products firms with strong profitability and conservative investment style are more preferrable, whereas semiconductors companies with low book-to-market ratio and relatively aggressive investment style are recommended to the investors.

KEYWORDS

Fama French Models, Asset Pricing, Portfolio,Food Product Industry, Semiconductors Industry, Investment Advice