This paper applies CAPM, the conditional CAPM on China stock market to see if these models fit in China or not. At the same time, we are trying to examine the cross-section of expected returns in China. The results are as follows: CAPM does not apply and the conditional CAPM does not have the full explanation ability either. Although the relationship between expected returns and beta varies with time, expected returns are also influenced by other financial ratios such as ratios between cash flow and the prices of stocks. Once connecting the conditional CAPM and the cross-section of expected returns, we will have a better understanding in movement patterns of stock expected returns.
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