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The Relationship of Stochastic Dominance on Chinese Stock Market and Its Affective Factors

Author: PanYing
Tutor: HuJiHui
School: Huazhong University of Science and Technology
Course: Probability Theory and Mathematical Statistics
Keywords: Expected utility theory Stochastic dominance Consistency test analysis System risk Industry risk Marginalβfactor
CLC: F832.51
Type: Master's thesis
Year: 2011
Downloads: 66
Quote: 0
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Abstract

Chinese stock market has been rapidly developing since its establishment. Especially in recent years, with the number of investors increasing dramatically, the stock market scale expands gradually and the requirement for effective resource configuration of securities market becomes more and more intense. While the investors involving in stock market investment, the willingness to improve their investment level is more strongly. So the study for the stock performance evaluation has increasingly become the focus of researchers. Although in recent decades, the research on stock investment value evaluation criteria has been deepening gradually in the academia and result in the effectiveness of stock selection efficiency be greatly improved, however, the research of the fundamental factors and mechanism which affect the stock performance was not so much. Thus we can’t provide reasonable suggestion on risk analyses for investors to evaluate the stock.The theory of stochastic dominance is widely used to evaluate the stock performance for that it doesn’t need accurate utility function expressions, doesn’t need to make limited distribution, and it is based on expect utility theory basis and its assumptions can be easily satisfied. This paper we randomly select ten typical industry stocks, inspect the performance of these ten stocks in different regions, different time intervals and different time span using the stochastic dominant consistency inspection method and select the efficient sets respectively. After a statistical analysis for the efficient sets inspection, we can conclude that the Hong Kong stock market is more effective than the mainland market while the mainland market has strong herding effect. We can also get the results that some stocks tend to be more suitable for the mainland stock market or investment, some stocks tend to be more suitable for short-term or long-term investments, and some stocks tend to be more suitable for a bull or a bear market investment.According to the empirical results we specify a figure for every stock through clever rules, thus we can use figures to reflect the pros and cons of the stock performance intuitively. Owing to the stock performance is affected by the supply-demand relations directly, this paper takes fundamental analysis method as the breakthrough point, and uses the multivariate linear regression model analysis to analyze how macro factors, industry factors, the company financial factors and company major news factors influence the stock performance with the change of region, cycle length and time span. According to the data results of the multivariate linear analysis, we find that compared the bear market with the bull market, their stock performance influenced by each factors is in the opposite direction and the stock Hong Kong market is more effective than the mainland market. We also conclude that for the mainland weekly return data effective information is diluted, the market efficiency of the mainland weekly returns is significantly lower than the market efficiency of the mainland day returns. In this way we can explain that the information openness and circulation degree is positive related to the market efficiency.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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