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The Study of the Efficiency of Risk Capital Asset Pricing Model in Chinese Stock Market

Author: AiYongFang
Tutor: GuoWanShan
School: Liaoning University
Course: Quantitative Economics
Keywords: CAPM APT Multiple factors CAPM
CLC: F832.51
Type: Master's thesis
Year: 2011
Downloads: 168
Quote: 0
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Abstract


The stock market plays an important role in the economy. It could transfer the money from low-efficiency area to high-efficiency area automatically, and optimize the capital resource. However, the stock market can carry this function out with precondition: fixing a real price for the stock. Only if we could set a right price for a certain stock and the stock price could reflect its real value, the money would flow into high-efficiency area. If a stock can’t get its right price, then the money can’t get its optimum. Thus the stock market can’t only promote the economy development, but set the economy back. Therefore, how to set a right stock price has been being the emphasis of economic circles in all countries. Our stock market’s great development makes more significant effect on our economy than ever. The stock market plays an important in adjusting the economic development. So the research on how to set a right stock price shows its own significance.For the time being, there are two most popular pricing models: the single factor model based on CAPM and the multiple factors model based on APT. First, we put the efficiency of the single factor model based on CAPM on our stock pricing into positive test. We put the relationship between beta and abnormal returns into test on up and down occasions while we add time-varying beta, we can’t get satisfactory positive results, though we try to improve the test method. So, the efficiency of the single factor model based on CAPM on our stock pricing is very low. Secondly, we put the multiple factors model based on APT into positive test. The results shows: Even though the efficiency of the multiple factors model based on APT is higher than the efficiency of the multiple factors model based on CAPM, its efficiency is also very low. At last, we improve the traditional pricing model by adding other factors into CAPM, because the traditional CAPM can’t set a exact price for our stock. Through our positive test, we find the multiple factors model, including the abnormal returns of portfolio, the scales of the firm and the value of the firm, could better set a right price for our stock.

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