The Relationships Between Size, Value, And Market Risk

The foreign empirical study of capital assets on the pricing model (CAPM) be questioned constantly in recent years. Many studies that besides the market risk, firm size, the value of the shares factors for yield has certain ability. Values and market risk factors can independently of the stock return and explain how risk factors of relationship between itself has become the important problem.This article uses VAR model research size, value and the dynamic relationship between market risk and independent ability based on the Shanghai A-share as the research sample.We find there are some phenomena paper in the combining factors affecting stock returns from the literature review, and find the research topic firstly. In the second chapter analyzed the affect between market risk, size and value based on the theory of efficient market hypothesis and the capital asset pricing model. The third part is empirical study design by build vector regression model. Empirical research the dynamic relationship between market risk, value and size factors using granger causality test, impulse response function and variance breakdown of VAR in the fourth part.The main conclusions are as follows:1.There exists a causal relationship between market risk and value factors that means the market risk changes will cause changes in the value and effect significantly. Firm size factor can granger cause SL, SH, SM, BM, BH and BL. SL and SH, SMB have bidirectional causality. Furtherly, SL will granger cause SH and SMB, that means SL is the vulnerable factor in the nine factors by SH and SMB's influences.The results shows that SH and SMB would cause the changes of SH return.It reveales that the SL are more sensitive and there is a small firm size effect. HML factor can not granger cause value factor reveals risk factors and other risk factors has no causality, the value factor is not the important factor caused market risk.2. Impulse response function confirms the Shanghai a-share existences size effect and value effectSmall company stock portfolio returns than large company stock portfolio's mean exist size effect. SH return is higher than SL means there has a certain value effect in the Shanghai stock market, but the effect of persistent is relatively short.3. Variance decomposition analysis found that the change of stock returns can be explained by its variance. Shanghai stock market's portfolio returns are influenced by market risk. The change of market risk will cause the change of firm size and value, but the extent of changes is similar.