A Comparative Study of Markowitz, CAPM and Fama-French Models in Portfolio Return Forecasting

This paper aims to offer a deep comparative study of the financial markets by using three important portfolio theories: Markowitz Portfolio Theory, Capital Asset Pricing Model (CAPM), and Fama-French Multifactor Model. By analyzing the underlying assumptions, model construction, risk-capturing ability, and their efficacy in predicting portfolio returns, this paper endeavors to illuminate the application of these theories in modern portfolio management and their strengths, weaknesses, and differences from each other. It is found that while the Markowitz model emphasizes the core of diversification in risk management, the Fama-French model offers a more thorough framework for risk assessment by adding various risk variables, whereas the CAPM provides a more succinct approach through the concept of systematic risk. Each model has specific application scenarios and limitations, and its effectiveness relies on market conditions and investors' needs. The research in this paper provides theoretical guidance for scholars and investors specializing in finance and a practical reference for actual investment management.