Nonparametric-estimation-based Smooth Transition Of Asset Pricing Model

Capital asset pricing model describes asset pricing and risk measurement in equilibrium state.Since Sharpey Lintner and Black et al founded the capital asset pricing model in the 1960 s,CAPM has become one of the core contents of modern financial theory.One of the most important research contents is to estimate and analyze the Beta coefficient which is used to measure the system risk.The traditional CAPM model usually holds that for a given asset or portfolio,the beta value does not change with time,that is,for a given asset or portfolio,the relationship between expected return and market risk is linear.However,a large number of empirical studies have found that this model setting does not accord with the actual data.Then the scholars who have studied the theory are one after the other.In a word,the research on asset pricing mainly focuses on the multi-factor asset pricing model and the dynamic asset pricing.Compared with the traditional threshold regression,the smooth structure transformation has the advantage of not finding a specific mutation point,and can estimate the continuous variation of Beta.The non-parametric estimation can avoid the defect that the parameter is incorrectly chosen in the parameter estimation.In addition,people usually hold stock and bond asset combination to spread the risk at the same time.However,some studies have shown that there is a certain linkage between bond and stock yield.If the stock yield on the same section is priced by bond yield,the risk diversification will be meaningless.However,the cross-section effect of bond on stock yield is rarely considered in domestic research.In this paper,bond and stock yield are used as panel data to calculate,and the results show that bond yield has little effect on stock price in the cross-section.It is therefore effective to diversify risk by holding both bonds and stocks.Based on the research results,this paper constructs the dynamic investment strategy of stock and bond portfolio,and compares it with the traditional static strategy.The results show that the dynamic strategy is superior to the static strategy,and most of the time the dynamic strategy returns more than the static strategy.And Sharp ratio is higher than static strategy.