A Study Of Chinese Capital Asset Pricing Model

Since the establishment of Shenzhen Stock Exchange and Shanghai Stock Exchange, Chinese capital market has made significant progress and the total value of capital market even ranked second place of the world in just 30 years. China’s financial capital market has enlarged its influence on the global financial market, and with China’s capital market opening degree increasing, it is necessary to establish asset pricing model to explain the operation of our securities market and reveal the relationship between the benefits and risks of capital market.The paper take the existing research results for reference, and combine the characteristics of Chinese stock market, using nonparametric and semiparametric method to study of asset pricing in China securities market. Paper firstly using nonparametric smoothing spline method to establish single factor asset pricing model and estimate all the sampled stocks to examine the model’s explain ability to time-varying risk, nonlinear asset pricing, nonparametric-Characteristics Line and beta stability. Paper also compares the nonparametric single factor asset pricing model and the traditional linear CAPM model to see the difference in fitness, alpha coefficient and beta coefficient. Using the same method, liner F-F model, nonparametric F-F model and semiparametric F-F model are built and estimated, and the different models’ estimate results are compared.Through the empirical modeling analysis, we can get the following main conclusions:Nonlinear CAPM model’s explanatory power of the security market of our country is superior to the traditional linear CAPM model, which not only reflected in the likelihood ratio test and model fitting effect comparison, also reflected in the Characteristic Curve of nonparametric method can vividly describe the Jensen alpha of each stock changes with the change of market returns, which proves alpha is time-varied and the liner CAPM’s assumption that alpha to be a constant is wrong.Although the Wilcoxon-Mann-Whitney test on all three sizes stocks group can not say there are differences in liner and nonparametric betas, nonparametric beta does change with market returns change, this phenomena is founded no matter whether the stock’s linearity can be rejected. So just like alpha, beta is also time-varied.There is Size effect exists in Chinese securities market and this effect can be explained by company performance and secondary market.BE/ME effect only exists in the small size stocks group, but not in the middle and big size stocks group.Nonparametric F-F model finds its beta coefficient, SMB’s coefficient and HML’s coefficient are also time-varied, nonparametric F-F model is superior to the linear F-F model.Build the linear F-F model, nonparametric F-F model and several semiparametric F-F model and compare the estimation result, we can conclude that the nonparametric F-F model has the greatest explanation power to Chinese securities market.