The Study Of The Chinese Stock Market Anomalies

Following the traditional pricing model, excess return is determined by the excess risk, so the excess return of assets should be explained by the excess risk factors. Sharpe (1964), Lintner (1965), Mossin (1966) proposed the capital asset pricing model (CAPM). From the early 1960s, as more and more market anomalies were discovered, the capital asset pricing model is facing the challenge about the empirical validity. To explain the vision, people have made many models on the basis of the capital asset pricing model. One of the most representative models is the arbitrage pricing theory and another one is the three factor model proposed by Fama and French (1993). Today, the three factor model has been proven to be better to explain the stock price.Because of the validity of the three factors model, the article draw on Fama and French's (2008) research on market anomalies to study the Chinese market anomalies. By using the method of grouping and regression analysis, We obtain some comprehensive results about Chinese stock market anomalies. After controlling the market cap, the net equity issuance effect is present in each group, that the stocks with net equity repurchasing have higher return than the stocks with net equity issuing. In the middle-cap group, there is ratio of value effect, that is, the stock with higher ratio of value has higher return than the stock with lower ratio of value. In the large-cap group, there presents the net operating working capital effects, that is, the stock with higher net operating working capital has lower return. In each group, there is abnormal earnings effect. For the company with higher profitability, its stock return is higher, but for the worst profitability group, its return is relatively high. A possible explanation is that, due to the presence of listing requirements, it is expected these stocks'performance will be significantly improved in the future, so these stocks are more vulnerable to speculation. In the large cap group, there is momentum effect, that a higher yielding stock in the past, its future earnings is higher. In addition, we also find that using the three factors to explain the stock returns over time, there are significant non-zero intercepts, so the applicability of the three factors model in China market is questionable.As the three factor model's ineffective in interoperating these market anomalies, we turn to Chen-Zhang three-factor model. From the Q theory, we find another path of asset pricing, starting from the asset value factors rather than starting from the risk factors to look for explanatory factors. Using the new three factor model based on real economy, we can effectively explain the net share issuance effect, the ratio of value effect, the profit effect and momentum effect. For the net operating working capital effect and total assets growth effects, although not fully explained, compared to the three-factor model, the new three factor model effectively reduces the value of excess return and its significance.There are a lot of shortcomings in the article. For the regression results, although the model can better explain the market anomalies, the return on assets related factor's explanatory power is poor. We analyzed each abnormal variable separately, did not explore the possible deeper relationship between the variables. These parts need further studies.