Research of Impact of COVID-19 on Clothing Industry Using Fama-French Five-Factor Model

Abstract

As COVID-19 negatively affected the U.S. stock market, the performances of stocks vary from different industries. This research focused on the specific impact of the pandemic on the clothing industry specifically. The study used the Fama-French 5 factor model, which includes two other variables -RMW and CMA based on the Fama-French 3 factor model, including factors of return on the market, size of firms, and book-to-market values, to get the performance of stocks of the clothing industry. The data from a time before COVID-19, which was January 2019, to time during the pandemic, March 2021, is obtained from Kenneth R. French Data Library. The two sets, which are before and during the pandemic, of coefficients of all the five factors and 𝑅 𝑖 − 𝑅 𝑓 are calculated using the model and compared with each other. The results show the change in the significance of three factors: value, profitability, and investment, which suggests that the performance of companies in the clothing industry is related to those three variables. In conclusion, investors should be careful with firms with low book-to-market ratios and those with low investments. Additionally, investors need to be cautious with firms that have robust profitability.