Multi-factor Model In The Chinese Stock Market Application

Multifactor model holds important position in modern investment theories. Multifactor model assumes that the return on investment will be influenced by various risk factors, when under this model's assumption, the return and risk reach equilibrium, the Investment return of the risk asset is described by Arbitrage Pricing Theory (APT). This dissertation studies if no arbitrage equilibrium with the system risk factor can be reached in the market, under the constraint of no short sale trading regulation in the Chinese stock market. The conclusion of the research shows that no short sale trading regulation acts as a hedge factor in Chinese stock market, no arbitrage equilibrium can be reached weakly in the Chinese stock market. In Chapter 2, the system risk from non-trading share reform are thoroughly analyzed, the hedge function of the regulation in system risk are studied, empirical data shows the regulation is the hedge factor to the risk arising from non-trading shares reform. In Chapter 3 applications of multifactor model in investment management are studied, the modeling of macroscopic multifactor model in Chinese stock market are studied both theoretically and empirically. In the last part of chapter 3, formation of performance evaluation standards of investment portfolio by multifactor model is explored, empirical data are given.Because the lack of short selling mechanism and stock index option in Chinese stock market, when securities in the market are all positively related to some system risk factors, such as risk factor from non-trading shares reform etc., these are no way to reduce the risk by the selection of portfolio.In a perspective view of the development track of the Chinese stock market, we think in the Chinese stock market some system risks are been hedged against by a series of policies. From the point of view of the development history of the Chinese stock market, the Chinese stock emerges from the economy transition, and it develops gradually with series of rules, policies, regulations and rectifying etc. The movement of the Chinese stock market and the function of the policy depend on each other to save mutually. First, the Chinese stock market has the government direction type of characteristics, in this newly arisen market, the government and its policies push stock market development as an external power. But this kind of development mode has its internal defects with the excessive intervention by the policies, with the constraint of the current trading rules, the market itself lacks a regulating mechanism to the system risk, this enhances the function of a policy further again, making the policies act as an important role to hedge against the risk in the stock market.Given the probability distribution of random variable, adjusting variable policies Y can offset the influence of the risk factors, the effects of policies attain biggest, and by cancellation of the influence of the some system factors, the return of portfolio become a certain value, risk free selection of portfolio can be realized.We find out every releasing dates of the policies which had higher influences in Chinese stock market, based on the stock price changes before and after the releasing dates, the stock price fluctuation changes are studied both in the short term and in the mid term, also how are the policies functioning is studied.