A Study On The Expected Rate Of Return In China 's A - Share Market

In variablecapital markets, the expected rate of return is an important referencefor investors to make investment decisions and for managers to manage companies’value. Ashuge scholars consistent researching, theories about estimating of expectedreturn which is also calledasset pricing have gotten many theoretical results. And inthese, CAPM and Fama&French’sFF three-factor model are the most popularmodels undoubtedly. At the same time, however, some studies have foundthatreplacingexpected yield rate byex post realized gains is inappropriate. In this case,researchers began to convert research ideas by using stocks’ price and expectations ofthe companies’ future performance to calculate the implied cost of capital (ICC)ofequity. And ICC can serve as expected return of equity.In this paper, the authoranalysessixmain models to estimateimplied cost of capital,and focus on the empiricalstudy of abnormal earnings growth methodto China A-share market. Firstly, according to certain conditions, the author chosesthe samplecompanies and get their appropriate observations, then measure out these samplecompanies’ expected annual rate of return from2006to2013. Based on this work,hestudiesthe relationships between expected and realized yield, secondly. However,this article does not follow other researchers employing a cross-sectional regressionmodel, but uses panel data models which is considered as more appropriate. Theresults showsamongexpected yield indicators, including rojwhich is based on OJmodel and rpe、rpeg,、rmpegthat are extended from PEF model, only rpehasapositivecorrelation with afterwardsrealized yield–thusit can be considered that among theabove four indicators, rpeis the best alternative to the expected return. In addition, wefindthat ex_ante real rate of return can have a negative impact on investors’expectation-it is a valuable supplement to existing research. Finally, by regressingexpected rate of return on some factors that may affect the returns, it is found that netbook value per share and earnings volatility have significantly positive influence, andβ-weak the positive effects. However,there was no significant relationshipbetweenthe expected rate of return and company’s asset-liability ratio. Whatismore，asurprising findis that the size of the company hasa positive correlationrelationshipwith expected yield, which may be due to the Chinese investors’ small-capstocksinvestment preferences.