Empirical Study Of Three-factor Pricing Model In Chinese Stock Market

This paper carries on the empirical study of the combination data of Chinese stock market. We propose a Three-factor asset pricing model describes expected return on a portfolio in excess of the risk-free rate, and test in China's stock market.The estimates of the three-factor regression on individual stock return report that except small size & growth stock combination, the model does a better job on the other five combinations. We show next that for the stock yield of low and neutral B/M combinations, the greatest impact is the liquidity factor, followed by technical factor, the final factor is the intrinsic value; and the result for high B/M combinations is consistent with the performance of overall sample, the greatest impact factor for stock yield is the technical factor, followed by the liquidity factor, and the last is intrinsic value.The empirical study on the three-factor model which describes the excess return of portfolio shows that the high liquidity portfolio contrast to the low liquidity portfolio has higher portfolio return. Our three-factor model does a better on high liquidity portfolio than on others. It is reported that technical factor exerts positive influence on portfolio return, with the coefficient ranging from 0.703 to 0.936; and the liquidity factor exert significant positive influence; while the intrinsic value factor for five portfolios exert no significant coefficient except one portfolio.