Three-factor Model In The Chinese Stock Market Applicability Of Empirical Research

This paper investgates the adaptability of the three-factor model in Chinese stock market, that is the relationship between expected stock returns and market beta, size and book-to-market equity in Chinese stock market. According to the sample we examined, we can draw the following conclusions that, in general, the three-factor model still has the adequate power to explain the cross-sectional variation of expected stock returns in Chinese market, and that there also exist size effect and book-to-market equity effect in China, small firms stock have higher expected rerurns than big firms while value stocks perform better than growth stocks as far as expected returns are concernd. The conclusions of this paper can be used as guide to the portfolio establishment and performance forecast.