Research On Estimating Operating Beta Of Chinese Industries Based On Behavioral Asset Pricing Model

Operating beta of industry is a measure of the operating systematic risk of an industry，whichreflects the systematic risk faced by the company engaged in business activities in the industry. It isalso an important parameter which determines the industry’s cost of capital，which is important for theassessment of state-owned enterprise，determining the project’s cost of capital and determining thecost of capital of non-listed companies. Traditional methods to estimate operating beta of industry isbased on the theoretical framework of the capital asset pricing model，which follows the assumptionthat " Capital Market is Effective ". While the reality and the emerging behavioral finance theory haveproved that" Capital Market is Not Effective "，so the operating beta of industry estimated bytraditional methods does not meet the need of the practice.Firstly，analyzes the theoretical defect of traditional method to estimate operating beta of industry，and adds Behavior Asset Pricing Model into the process of traditional method，forming an improvedestimate method which is based on the BAPM. Secondly，designs18different parameters’ plans andmakes an empirical comparison for each of them in order to select the optimal solution for theparameters of dynamic group. Thirdly，selects1303companies from Shenzhen and ShanghaiExchanges and exports the monthly closing price of the stock and financial data from January1，2008to December31，2012form Shanghai Gildata，estimates the operating beta of industry of Chineseindustries by the improved estimate method. Finally，Makes a comparison and analysis for theoperating beta of Chinese industries.When determining the parameters of dynamic group，finds that the parameters’ plan of "noise500，5years，monthly rate of return" fits best with the BAPM. The distribution interval of the operatingbeta of Chinese industries is form0.38to0.68. When making a comparison and analysis for theoperating beta of Chinese industries，finds that (1) there is significant difference between the operatingbeta of industries in a significant level of0.05，which means different industries faced with differentoperating systematic risk，(2) it is significant that the operating beta of industries based on the BAPMis lower than the operating beta of industries estimated by traditional methods in a significant level of0.01，(3) Chinese22industries are all affected by noise trader risk，the most affected industry is thefinancial industry and the least affected industry is the pharmaceutical and health industry.