A Study On The Phenomenon Of Cross-Sectional Returns On Chinese Stock Market

In China, the stock market has been influenced by the government’s policy, each policy that affects stock market often decided to stock market’s long-term trend. So it is shown that the stock market is more sensitive to our country macro economic, every time, when publish the macro economic data the stock market perform volatility. At the same time, the issuing of new IPO and refinancing of listed companies as two mountains in front of investors, it squeezes the capital in the stock market little by little. The listed companies constantly finance and invest in new projects. Capital markets have been the most watched the stock returns, cross sectional phenomenon is a special phenomenon in the stock market, and the existing classical financial theory cannot well explain the phenomenon. Income and investment has always been closely related, foreign studies show that there is physical investment of listed companies effect (that is, the cross section phenomenon of the physical investment). But there is few studies in this field in China. This paper tries to study the relationship between the physical investment of listed companies and the price of the stock (i.e., whether there is a physical investment effect) and causes of the relationship and the influence of macroeconomic variables on stock prices vision.This paper use the comparative analysis and inductive summary of combining the research method, quantitative method and qualitative method of combining the research methods, theoretical research, empirical research combined with a practical application of research methods. Through the review of listed companies’ cross section phenomenon of the physical investment and the causes of cross section phenomenon of the physical investment, and then briefly introduce the study methods on cross section, we know that concerning cross sectional research mainly divided into two aspects, on the one hand is whether there is a significance test of the research of the cross sectional; On the other hand, is the research of the causes of the cross sectional. On cross section gains significance test are mainly conclude single factor grouping method, multi-factor stock grouping method and FM cross-sectional regression method; About the cause of cross sectional study method mainly conclude capital asset pricing model, Fama-French three factor method and DT characteristics analysis.Through the review of the research methods of cross section, according to the characteristics of different research methods and characteristics of the sample in this paper. Whether cross-sectional returns phenomena is exists or not, according to the applicable conditions of different research methods, this article choose stock grouping method to test it; For the research of influence factors of cross sectional returns phenomenon, three kinds of research methods of influence factor of cross sectional returns mentioned above are based on constructing factor or the characteristic value method. This paper first use the CAPM model to test the degree of explanation of the market portfolio returns for equity portfolio income; then use Fama-French three factor model to test the degree of explanation of market factors for the physical investment premium; finally on the basis of the two step regression method used by Wang Yintian and Zhu Yingzi (2011) and we appropriate improve it to investigate the effect of macroeconomic variables on physical investment effect.In order to avoid contingency caused by reselect, our sample uses the data of all normal listed A shares in the two city of Shanghai and Shenzhen between January1997and December2011. In order to ensure that the sample data can be real reaction of the stock market situation, we further screening the data, and choose the macro economic variables used in this paper on the basis of literature review. Then through the descriptive statistical analysis of data, we view the basic features of data, and the key to check the time series stationarity of the data at the same time to ensure that the data meets the requirement of model.Specifically, the possible innovations of this article are the following several aspects:First, through literature review of the physical investment of the cross section returns phenomenon of listed company, we found that the foreign scholars found that the stock market exist physical investment benefit. And few domestic scholars’research refer to this field, among the domestic scholars only Wang Yintian and Zhu Yingzi (2011) found that Investment-to-capital (Investment to capital) have significant effect on stock returns, and it indirect support this kind of imagination; Also found cash assets capital ratio is non-significant in Chinese stock market. So it is necessary for our country to research whether there is physical investment benefit.Second, foreign language literature commonly use the five macro factors variables constructed by Chen, Roll and Ross (1986) as variables to measure macroeconomic risk. The five variables respectively are industrial production growth rate(MP), unexpected rate of inflation (UI), changes in expected inflation (DEI), the term premiums (UTS) and default premiums (UPR). But, because our country’s financial market development is relatively backward, and the statistical survey data is not perfect. Therefore combine with related literature at home and abroad and our country’s concrete conditions in financial markets, we structure risk indicators which reflects the Chinese stock market system, and try to explain the actual investment of listed companies and benefits of vision by macroeconomic risks.Third, by reviewing the literature, domestic scholars estimate expected inflation mainly through modeling. Because they general lack of theoretical basis, at the side of macro economics, expected inflation is generally derived from fisher equation. Therefore, this paper use the method of Liu Xueyan and Zhang Jingting (2008) using a structural VAR from the fisher equation to derive the expected inflation rate. But, we found the nominal interest rate and inflation rate is steady, which is contrary to the conclusion of Liu Xueyan and Zhang Jingting(2008). Domestic scholars come to the smoothness’conclusion is different by constructing variables of different interest rates and the rate of inflation, also found their smoothness in different periods are showing obvious difference. Therefore we believe that the structure of expectations of inflation data is not perfect in our country at this stage.Fourth, due to there is no people study the vision of the physical investment and returns of listed companies in China, if the empirical results prove that Chinese listed companies exist this vision, it will offer great help to predict stock returns and portfolio construction.