The Empirical Test Of Money-based Pricing Model And Asset Pricing Model Comparison

When studying Asset Pricing Model and the important factors that impact the asset returns, the macro factors cannot be ignored, especially the money factor. So besides the models like CAPM, Fama-French three factor model (FF3) and Carhart four factor model (Carhart), I also include the consumption based pricing model (C-CAPM), money based pricing models (MCAPM and MC-CAPM) which add the real money growth in the CAPM and C-CAPM. I use the data of the whole market including Shanghai and Shenzhen markets from July,2000 to December,2013 and apply the Fama-MacBeth method, HJ-distance test, Wald test and so on to judge the model based on the standards according to LNS (2009) which means checking the model from different aspects such as (1) the magnitudes, signs and the sigfiance of coefficient estimates relative to their theoretical values; (2) theit of the model when explaining the cross-sectional returns of the test assets; (3) the same risk premium for any set of test assets. The aim of the paper is to test whether MCAPM or MC-CAPM is suitable and to find out the best model which can help investors to allocate their wealth and invest in the market. For the share reform and different characteristics of different stock markets, I also test for subperiods and different markets separately.According to the results of the empirical tests, it is difficult to find an asset pricing model that suits all the markets and different periods. It indicates that for the whole market and Shanghai market FF3 is relative better and the size and the value factors are together priced, but the performance the factors are not stable and it has omitted some factors and the money factor can explain some of the part that the size and value factors cannot explain. Besides, from the aspect of HJ-distance, MCAPM is better. It also indicates that for Shenzhen market, MCAPM performs better no matter which test is applied. So MCAPM is more suitable for Shenzhen market which may be caused by the preference of the investors to invest money in the companies with small size when the money they hold is increasing so that they can get high return. So money is a macro factor that deserves considering and studying and have some explanation power. MCAPM can be one of the reference models for asset pricing and the central bank can control the market through the real money supply.