Industry Factors Impact On Stock Returns Empirical Analysis

In classical finance theory,stock return is regarded to be mainly determined by the systematic risk which is represented by the covariance of the stock and the market. However,in realistic investment practice,industry factors have a critical influence on stock return,in terms of either market performance or asset allocation strategy by institutional investors,which is publicly accepted.Although some scholars conducted some empirical analysis,academic research on this problem is still under an unsystematic status.Due to the lag of theory to practice,this paper is supposed to conduct a systematic research on the impact of industry factors on stock returns.To achieve this,this paper firstly analyzes the working mechanism of industry factors on the basis of classical finance theory.Classical theory is largely concerned about equilibrium pricing and considers the price determination process an automatic black box,which reduces its explaining power on the real stock price fluctuation.Therefore,this paper concludes stock price determination and fluctuation mechanism,and then discusses on the effect that industry factors take in this process.This paper conducts empirical analysis, testing the extent and explaining power of industry factors of domestic listed companies on stock returns by the partial variance of the regression equation.The results show that industry factors account for 19.6%of the total fluctuation of stock price.And since stock returns can be broken down into objective part of ROE and subjective part of PB changes,this paper further analyzes the influence of industry factors on those two parts by regression method.Finally,this paper comes to a conclusion that industry factors take effect by influencing investors' subjective estimates rather than operating results,based on the coefficients of stock return,ROE and PB changes.