The Empirical Research Of Application Of CAPM And Extensions Of CAPM In China's Security Market

Capital asset pricing, especially the relationship between average return and risk, is an important issue of financial theory. This paper does try to summarize CAPM,ICAPM,BAPM and APT based on asset pricing system in developed countries, and take an empirical study by using the data from china's security market. Which provides some advice on how to understand the pricing of stocks and how to make more effective strategy of investment and avoid risks? According to the research of former scholars, we can find that the literatures about the comprehensive analysis of applicability of Capital asset pricing model and extensions of CAPM is not much and most of the literatures have the problems of small quantity of stock and short Sample period, in addition, in recent years, China has entered a stage of rapid development. This article starts the empirical research of Capital asset pricing model and extensions of CAPM with the data from china's security market at the right time.The data for this study are weekly percentage returns for 423 A stocks traded on Shanghai and Shenzhen Security Exchange during the period January 3, 2003 through December 12, 2007,using the technique of time series analysis and regression analysis to test the relationship between weekly percentage return and coefficientβand the construction of the risk. We can conclude that CAPM in the Chinese stock market is not effective and constructing a rational stock portfolio can reduce the total risk of the portfolio to only contain system risk. We choose 300 A stock data randomly from Shanghai and Shenzhen security market, and test them. Whether does it conform to ICAPM in the sample period January 2003 through December 2007.The results show that China's stock market conforms to ICAPM? The three factors'explained degree differentiates: market beta is strongest, HML takes the second place, and SMB is feeble comparably. We find that in the sample period there is no small company's effect, the average returns of big companies are bigger than small companies. At the same time, we select 40 stocks from Shenzhen component index and test them whether they apply to BAPM and APT in the sample period January 2003 through December 2007. We discover that if the markets were effective and noise traders were not dominant, CAPM is appropriate to use. but when the market invalid or ineffective, BAPM for investors is better than the choice of CAPM, Shenzhen stock market is basically in line with the arbitrage pricing model, and industry factors influence stock returns ratio.