A Study On Five-factor Asset Pricing Model And Its Application In Chinese Securities Market

With Fama-French five-factor model throughout the thesis,the performance of Fama-French five-factor model is examined first,and then the pricing of liquidity,IPOs long-term performance and mutual fund performance in Chinese securities market are studied mainly based on this asset pricing model.Studies on these questions not only can help recognizing the internal asset pricing mechanism,improving the pricing efficiency,realizing operation rules and existing problems in Chinese financial market,but also can help investors improving investment efficiency and updating their investment theory.One main characteristic of this thesis is the study and application of Fama-French five-factor model with the Chinese securities market as sample.Innovation parts and main points of the thesis embody in the following aspects:Firstly,by analysis of the respective relationships between stock returns and size,B/M,profitability,investment in advance,the feasibility of Fama-French five-factor model is studied.Specifically,time series regression,GRS test and Fama-MacBeth two-step method are used in study based on the construction of 5×5 value-weighted portfolios.The results show that not only Fama-French five-factor model performs very well in Chinese stock market,but also it is better than Fama-French three-factor model.Compared to the results in USA stock market,the size effect,B/M effect and investment effect behave in the same way,but the profitability effect behaves in the opposite way and it is mainly manifested in small stocks.When doing futher research by separating the samples into bear market sample and bull market sample,the results show that the B/M effect,profitability effect and investment effect behave in the opposite way in the two states of market except the size effect.The results also show that not only Fama-French five-factor model is feasible in the two samples,but also it performs better in the bear market.Secondly,with the Amihud illiquidity measure and Kang and Zhang's improved Amihud illiquidity measure which was put forward recently to calculate the liquidity,Fama-French five-factor model is applied to the pricing of liquidity along with CAPM model and Fama-French three-factor model.By constructing 1×10 equal-weighted portfolios,the liquidity premium,size premium,B/M premium,profitability premium and investment premium are studied.The explanatory power of several factor models is checked futher.The results show that the liquidity premium from Kang and Zhang's improved Amihud liquidity measure is more significant than that from Amihud liquidity measure.None of CAPM model,Fama-French three-facor model,Fama-French five-factor model and liquidity augumented CAPM model can explain all premiums at the same time.But the new six-factor model obtained with the liquidity factor from Amihud liquidity measure to augument Fama-French five-factor model can do.Thirdly,Fama-French five-factor model and its derivative model are applied to study the long-run performance of IPOs along with CAPM model and Fama-French three-factor model.The relationship among company size,profitability,B/M,investment and the long-run performance of IPOs is also studied futher.The results show that the conclusions from Fama-French five-factor model and its derivative are consistent with that from Fama-French three-factor model except under the condition of total value-weighted method.And in most cases,there is significant negative relationship between company size and the long-run performance of IPOs,there is significant positive relationship between profitability,B/M and the long-run performance of IPOs.But there is no significant relationship between investment and the long-run performance of IPOs.Finally,by Fama-French five-factor model and Fama-French-Carhart six-factor model along with CAPM model and Fama-French three-factor model as risk adjusted model,the thesis uses the GCT regression model which was recently proposed by Hoechle et al.into the decomposition of open-end fund performance and is compared to fixed effects model.History performance,size,individual investors holding proportion are significant and robust under fixed effects model.But only size and individual investors holding proportion are significant and robust under GCT regression model.Compared to Fama-French-Carhart four-factor model,when using Fama-French five-factor model and Fama-French-Carhart six-factor model,net inflows and expense ratio are no longer significant,but family size becomes significant.