The Research On Influence Of Financial Constraints Upon Asset Pricing

Asset pricing has been one of the main topics of financial. CAPM had been putforward by Sharp (1964), Linter (1965) and Mossin (1966), which is the basis ofcontemporary financial. The people have improved and extended CAPM, for example,ICAPM, APT and B-S option pricing model. These models provide the good theoreticbasis of the research for the factor of stock returns. Traditional CAPM has beenchallenged by anomalies, for example, size effect, book-to-market effect, reversaleffect etc. These anomalies are not explained by CAPM, and they can affect the stockreturns. People still look for the factors that affect the stock returns, and expect thatthey can help firms reduce the cost of equity financial and help investors invest.Based on the information asymmetry theory, financial constraints have been putforward, which means that the internal cost and the external cost are different. Highfinancial constraints can affect the ability of external financing for companies.Whether financial constraints can affect asset pricing? This paper tries to study theeffect of financial constraints in Chinese A stock market, and then prove financialconstraints can be a factor for asset pricing. First, we select three variables to measurefinancial constraints, and then construct asset portfolios. Through descriptivestatistics and T-test, we prove that financial constraints have existed in our listedcompanies. Second, we also add financial constraints factor into F-F three-factormodel and change it into four-factor asset pricing model, and then compare withCAPM and F-F three-factor model. The conclusion is that four-factor asset pricingmodel has stronger ability to explain the stock returns than other two models. And thehigher financial constraints the higher stock returns. Last we test the independence ofthe financial constraints factor and find that the financial constraints factor canmeasure something independently in stock returns. It may reflect other risk that isdifferent from these known empirical factors. In a word, this paper finds that financialconstraints can be an independent factor for asset pricing. It can explan the formationmechanism of financial risk by corporate perspective, and give suggestion forrelieving financial constraints.