Asset Pricing Models Across Market Regimes: A Sector-Level Analysis Of The Swedish Stock Market During Covid-19

Sammanfattning

This study evaluates and compares the explanatory power of the Capital Asset Pricing Model(CAPM), the Fama-French Three-Factor model (FF3), and the Fama-French Five-Factor model(FF5) on Swedish sector portfolio returns across different market conditions related to the Covid-19 pandemic. The analysis focuses on five sector portfolios consisting of Swedish large-cap firms listed on Nasdaq Stockholm: Consumer, Financials, Industrials, Materials, and Technology. Monthly portfolio returns were constructed using adjusted stock prices obtained from YahooFinance, while factor data were collected from the Kenneth French Data Library. The sample period covers January 2017 to December 2024 and is divided into three subperiods representing pre-Covid, Covid, and post-Covid market environments. Regression analysis using Ordinary Least Squares (OLS) was applied to evaluate model performance. The results show that FF3 and FF5 generally provide stronger explanatory power than CAPM, although the improvements are not consistent across all sectors and periods. The explanatory power of the models was generally highest during the Covid period, particularly within the Technology and Industrials sectors. However, FF5 did not consistently outperform FF3, and the additional profitability and investment factors often provided only limited improvements. The findings suggest that the performance of asset pricing models varies across both sectors and market regimes. The study contributes to the existing literature by providing evidence from Swedish sector portfolios during different phases of the Covid-19 pandemic.