The Empirical Study Of Application Of CAPM And Revisions Of CAPM In The GEM

There has been four years since the inception of GEM, the main purpose of whichis to support small and medium, entrepreneurial and growth-oriented enterprises. As asupplement to the motherboard, the GEM plays an important role in China’s capitalmarket. Aiming at the problems of the empirical study of application of CAPM andextensions of CAPM in the GEM, the monthly returns of42listed companies on theGEM from30July2010to30September2013were selected for the study of thisissue.Firstly this essay uses BJS time series analysis and cross-sectional test method forthe study of the applicability of the CAPM. When the BJS time series method is used,the empirical results during both the sequencing period and the pre-estimation period,for the most part, show that a significant positive and linear correlation exists betweenthe expected rate of a stock or stock portfolio and the market risk factor. However, theempirical results during the testing period and the application of the cross-sectionaltest method show coefficients of the independent variables were not significant. Inaddition, R squares are relatively low under these two methods, indicating that thestock price factors contain some other factors besides market risk factor. In conclusion,CAPM in GEM is not very applicable and the conclusion may not be the same duringdifferent time intervals and using different empirical methods. Currently, it is notaccurate to estimate GEM market stock returns using CAPM model.To find other factors influencing GEM stock price, then this paper uses theextended model (three-factor model) to test its applicability in GEM. Following is abrief list of the empirical result. To begin with, the market risk factor is not significantand there may be a positive correlation between the stock returns and the market riskfactor. Secondly, the effect of small companies and the book-market effect is obviousin GEM. In other words, small cap stocks and value stocks are easier to obtain excessreturns. Additionally, speculations in GEM may be serious and investment behaviorslack the professional and rational guidance. Fourthly, although compared with thesingle factor model the explanatory power of three-factor model increases, the finalexplanatory power is still not high and there are other pricing factors in the GEMmarket. Finally, the author puts forward some corresponding policy recommendations.