This study contributes to the literature about asset-pricing models and their performances in different economic contexts. Moreover, the findings also offer insights into the use of the CAPM and TFM in developing countries in general and Vietnam, in particular. | VNU Journal of Science Economics and Business Vol. 36 No. 2 2020 13-25 Original Article Comparison of the Capital Asset Pricing Model and the Three-Factor Model in a Business Cycle Empirical Evidence from the Vietnamese Stock Market Luong Tram Anh VNU University of Economics and Business Vietnam National University Hanoi 144 Xuan Thuy Cau Giay Hanoi Vietnan Received 6 November 2019 Revised 09 June 2020 Accepted 15 June 2020 Abstract Using data from 2010 to 2019 for the first time the Capital Asset Pricing Model CAPM and the Three-factor Model TFM are compared in different contexts of the Vietnamese economy recession and recovery . This paper employs four tests including the t-test determination coefficient R2 Chow-test and GRS-test to examine the performance of the two models. Results show the superiority of the TFM over the CAPM in both contexts of the economy consistent with Fama and French s studies. This promises that the TFM can be used to replace the CAPM in capturing the cost of equity. Another finding is that the two models tend to perform better in recession than recovery. This study contributes to the literature about asset-pricing models and their performances in different economic contexts. Moreover the findings also offer insights into the use of the CAPM and TFM in developing countries in general and Vietnam in particular. Keywords Capital asset pricing model three-factor model business cycle developing countries. 1. Introduction determine the variation in stock returns such as the APT model Capital Asset Pricing Model . The Capital Asset Pricing Model CAPM CAPM and Fama-French Three-factor Model and Fama-French Three-Factor Model TFM TFM . One of the most important models is the The return is a fundamental factor that CAPM. Being first introduced by Sharpe 1964 affects investment decisions on the stock and then developed by Lintner 1965 and market. There are many asset-pricing models to Jensen 1968 the CAPM has become one of the most popular .
