An Empirical Study Of The Price-earnings Ratio Effect And Size Effect On Shanghai Stock Market

As stock market’s"anomalies"， the discovery of size effect andLow-price-earnings-ratio effect vacillated the efficient market theory in the academicstatus. The aim of this paper is the study of size effect and Low-price-earnings-ratioeffect on Shanghai stock market. On the basis of summarizes the research results athome and abroad, This paper Elaborate the concept of size effect andLow-price-earnings-ratio effect，introduce methods to empirical testing them andanalysis of their causes. Then this paper also make empirical test to the size effect andLow-price-earnings-ratio effect of Shanghai stock market. In the empirical test，thispaper collected761home in Shanghai A share listed companies in2008May to2011April monthly income data. In accordance with the flow of the market value andprice-earnings ratio size，all sample stocks is divided into6portfolios（S/L， S/M，S/H， B/L， B/M， B/H）. Construced two variables，SMB and HML，measure sizeeffect and Low-price-earnings-ratio effect. SMB is a3small-cap portfolio (S/L, S/M, S/H) monthly income arithmetic mean value is subtracted from the3big marketportfolio (B/L, B/M, B/H) monthly income of the arithmetic mean. HML is the2portfolio (S/H, B/H, highest PE) monthly income is the arithmetic mean value issubtracted from the2portfolio (S/L, B/L, lowest PE) monthly income of thearithmetic mean. It was found，The variable SMB only in3small company portfolioof sample stock returns explain. The variable HML at a low P/E ratio portfolio to thesample stock returns explain.Finally, we analysis and interpretation based on theempirical results， and gives the corresponding policy suggestions. This papersuggested by develop the GEM，to strengthen the supervision of the stock market，improve the transparency of information， expand open to the outside world，strengthen investor education， its issue multibarrel method to improve marketefficiency.