Research On Value Effect, Size Effect And Industry Effect Of A Share Market In Shanghai

Efficient Market Hypothesis brought forward by Fama who is a finance expert at the University of Chicago is very helpful to the development of financial theory. All valuable information should be reflected by the price of stock according to Efficient Market Hypothesis, if the market is efficient. The profit that investors gained should match their risk. The mean-variance portfolio theory was brought forward by Markowitz in1965. The Capital Asset Pricing Model which was brought forward by Sharpe, Lintner and Black declared establishment of asset pricing theory. However, the capital asset pricing model was widely challenged with the deepening of financial. Scholars found many abnormal returns that could not be explained by capital asset pricing model. As the efficient market hypothesis was the basis for the establishment of the capital asset pricing model, scholars raised doubts about it. The purpose of this paper is to test the efficiency of A share market in shanghai and analyze the existence and hierarchical relationships of the value effect, size effect and industry effect.Drawing on the basis of previous studies, the paper test the efficiency of A share market based on the method of serial correlation test, unit root test and run test covering the period from July2005to June2010. Then, the paper estimates a factor model for value group returns, size group returns and industrial group returns to measure the values of the three effects and the relative importance among each other. There are two main conclusions in this paper. From the viewpoint of information effectiveness, the A share market in shanghai has reached weak form efficient on the whole. In addition, there is significantly industrial effect and size effect, the value effect is insignificant. From the viewpoint of relative importance, industrial effect is greater than size effect. This evidence indicates that the information have not reached semi-strong strong efficiency. For investors without insider information, fundamental analysis is still the primary means of investment decisions.