Empirical Study On Abnormal Return In Chinese Stock Market

We take abnormal return as the main topic of this paper. On the basis of analysis of the features of Chinese stock market as an emerging market and the trend of stock index from 2005 to 2007, summarization of foreign and domestic research on abnormal return, dissertation of the Efficient Market Theory and anomalies in stock market, this paper discusses the existence and causes of formation of abnormal return.Chinese stock index continued to rise during recent three years, especially in 2007, the SSE Composite Index experience the steep trend. In this paper, we do the empirical analysis on abnormal return in SSE A share market from 2005 to 2007, the CAPM and the Fama-French three-factor model, classified to the risk-adjusted model and the factor-adjusted model respectively, are taken to measure the respected return of a portfolio. To easy to the regression analysis, we made appropriate changes to the CAPM and the Fama-French three-factor model., and the difference between real return and expected return will be abnormal return. The empirical results got from CAPM and Fama-French three-factor model both demonstrate that all sectors of Chinese stock market exist significant negative abnormal return in 2005 and 2006, and exist significant positive abnormal return in 2007, which have something to do with small change of stock price in 2005 and 2006 and large increase in stock price in 2007. There are also have profound causes result in the existence of abnormal return in Chinese stock market. This paper try to explain the cause of abnormal return in the following four aspects: securities market institution, market structure, behavior of investors and information disclosure, according which to advance the corresponding policy proposal.The research on abnormal return in Chinese stock market have very important meaning in helping us to find out the factors affect market efficiency, understand evaluating Chinese stock market correctly and objectively, helping government to make proper market supervision policies and strengthening the function of financial markets.