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The Study of Behavioral Asset Pricing and the Empirical Research on the Shanghai Stock Markets

Author: XuGuangHui
Tutor: WangLiPing
School: Shanghai Jiaotong University
Course: Technology Economics and Management
Keywords: Capital asset pricing model Behavioral asset pricing model Noisetrading risk
CLC: F224
Type: Master's thesis
Year: 2013
Downloads: 190
Quote: 0
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Though the standard financial theories based on efficient markets hypothesis aredominating the main stream of financial study, which holds that all the equities andasset are efficiently priced and all the returns are paid on systematic risks, many factsand empirical studies show that the CAPM can’t explain all the gains in reality.Behavioral finance believes that investors in the markets are not always rational,and their value perspective, social status and emotional can possibly affect theirjudging on the asset value. When irrational investors took the lead, it might bringextra risks to the equity market, saying noise trading risks. Shefrin and Statman(2004)came up with the behavioral asset pricing theory, which included the noise traders inthe model, and thought that assets in the stock market were decided by bothinformation traders and noise trader, marking the milestone in this field. However, theprecondition of BAPM theory is about how to effectively construct behavioral marketportfolio. Because of the changing of investors emotions, it brings a lot of difficultiesfor empirical study on stock market.Based on the previous study conducted by Vikash Bora Ramiah and SinclairDavidson(2002), this paper adopts the Shanghai Stock50index to structure the DVI,aiming at describing the investors emotion in the market. Using the exchange data ofShanghai A share market as the sample, the paper analyses the applicabilitydifferences between CAPM and BAPM under three certain market conditions, andfinds that BAPM is more efficient when explaining the market return under theprecondition of the booming market or sluggish market, while CAPM is relativelybetter when the market is in situation of balanced market.Finally, given the characters of active noise traders in our stock market, the papercomes up with the possibility of listed company value assessment using behavioralasset pricing theory. Because in the market with lots of noise traders, the evaluationmodel based on BAPM might be more helpful to find the inner value of listedcompanies and might contribute more to guide investment. Therefore, this paperconducts the empirical analysis and test on a specific case, and finds that theevaluation model based on BAPM meets the expectation of BAPM theory, andverifies the adaptation of the application in our stock market.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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