**5. Discussion**

### *5.1. Analysis of Multi-Factor Model*

We compared three multi-factor models in OLS regression and proceed to ridge regression for higher significance and explanatory power. In the seven-factor model, only RMW and HML factor have negative e ffects on the stock excess return, which is deviated from the assumption. To be specific, negative RMW means that a company with lower ROE can achieve higher excess return than higher ROE company. Also, negative HML means lower book-to-market ratio result in higher excess return.

According to the previous empirical studies in Chinese stock market, the low level of ROE often corresponds to low stock price. On the contrary, relatively high ROE means that the stock price has reached a periodic top. We can infer that stocks with relatively low ROE can attract investment which can boost the stock price. As for the CMA, a company with lower growth of investments has higher excess return. We can infer that investors prefer purchase stock with lower growth of investment.
