The Risk Structure And Its Characteristics Of Shanghai Stock Exchange

Investing stock has risk because of the uncertainty of future earnings. The uncertainty comes from three important levels:the company level, industry level and market level. In order to have a comprehensive understanding to the risk and avoid loss better, inventors need to analysis the structure of stocks risk, calculate the weighting of each level’s risk and get its changing trend. Then they can make the right investment plans.This paper selects the daily closing price of Shanghai A-shares data which eliminate ST and*ST stocks, Shanghai composite index and Shanghai industry index. The time span is January9,2009to December31,2013. Then according to the basis of GICS classification standard divide the791stocks which will be researched into ten industries:energy, raw materials, industrial, optional consumption, the main consumption, medicine and health, finance and real estate, information technology, communication services, public utilities. This paper sets up industry factors model in each annual for individual stocks, through the variance decomposition of stocks yield, calculate the company, industry and market factors’contribution degree to the volatility of individual stocks earnings. After calculating a weighted average of the individual stocks which under the GICS industry classification, get the risk structure of ten industries.Through the analysis of the risk structure of different industries in the Shanghai market and its change trend, this paper can get the following several important conclusions. Firstly, the companies which are doing asset restructuring, trying to business transformation, or facing financial problems show strong company risk. On the contrary, the industry leading companies which are in mature operation has less company risk relatively, but more market factors. Secondly, different industries’ risk shows different characteristics:1) basic industries, such as energy, raw materials, communications, industrial, public utilities, individual stock risk are affected more easily by market factors. In addition to raw materials, the other four industries’risk structure is relatively stable with little changed proportion;2) national strategic industries, such as the information technology industry, because of the supporting and protection of national policy, the volatility of stock returns is less affected by market factors, the risk of companies is mainly affected by the factors of company. What’s more, the company risk has a tendency of increasing;3) the financial and real estate industry has more market risk, and the market risk has a tendency to increase year by year; Also have a greater risk of industry at the same time, but the industry has a tendency to reduce risk;4) medical and health industry is less affected by market factors, so under current background of macroeconomic whose outlook remains uncertain, medicine and health industry stocks can be strong defense properties;5) for consumer industries, the main industry which includes consumer products, food and drug retail segment is affected less by macroeconomic and company risk is in larger proportion of total risk; The optional consumption industry which includes cars, clothing, the leisure industry and media industry segment is affected by macroeconomic more easily and the risk is mainly from the fluctuation of market.The conclusion of this paper can provide reference for investors. The investors who prefer to risk can focus on the stocks which have higher company risk, such as information technology industry, benefiting from the volatility of the stock itself. The investors who hate risk can choose the medicine, the main consumption industries stocks and so on, through appropriate portfolio to disperse the systemic risk.