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Empirical Evidence For The Fama-French Three Factor And Improved Model In Domestic Securities Market

Posted on:2013-03-16Degree:MasterType:Thesis
Country:ChinaCandidate:T WangFull Text:PDF
GTID:2249330377454557Subject:Finance
Abstract/Summary:PDF Full Text Request
The return of securities has long been a core topic of investment industry, and also received attention as a core topic of financial economics.The Capital Asset Pricing Theory and Fama-French three factor model are Standard Model on the determinant of stock market returns. Since1980s, the Capital Asset Pricing Theory based on Efficient MarketHypothesis has been challenged by much empirical evidence. The so called anomalies on the security market including Size Effect, Value Premium and so on, has brought a serial of revolutions to the field of financial asset pricing theory.Fama and French proposed that the rate of stock market return can be explained by three factors:excess return, size and book value ratio. The risk of the movement of all stock prices is revealed throughMarket Factor, Size and Value Factor. These Factors tell us respectively that small companies and companies with high BE/ME will bring higher returns. So, can this model explain the rate of Chinese stock market return?As advanced foreign capital markets, Size and Value Premium exist in domestic from the empirical evidence of securities markets in Shanghai and Shenzhen from2004:7—2011:7. Through the analysis of the risk underlying Size and Value Factors, capital returns differ a lot among different portfolios, which are formed by ME and BE/ME. What’s more, the P/E factor also contribute to the model’s explanation power.According to the sample we examined, we can draw the following conclusions that, in general, the three-factor and four-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,P/E effect and book-to-market equity effect in China, small firms stock have higher expected reruns than big firms while value stocks perform better than growth stocks as far as expected returns are concerned. The conclusions of this paper can be used as guide to the portfolio establishment and performance forecast.
Keywords/Search Tags:Fama—French model, size effect, book-to-market equity sizeeffect, P/E effect, Accumulated earnings
PDF Full Text Request
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