An Empirical Analysis Of The Effective Factors About Returns Of A-share Market In China

With the rapid development of Chinese economy, Chinese security market has a fast increase and makes a close relationship with society. At present, China is in the comprehensive deepening reform in the new period, and whether security market develops healthily and steadily affects the development of economy directly. To facilitate the sound and stable development of security market in China, analyze securities’ values rationally and help investors invest in securities reasonably, it is essential to make a deep research on the effective factors of returns of the A-share market of China.Firstly, all stocks in the A-share market of China are assigned into 25 Fama-French portfolios based on firm size and book-to-market equity ratio(B/M) in the paper, and the monthly excess returns of 25 Fama-French portfolios are empirically analyzed by standard C-CAPM, Fama-French three-factor model and four-factor model. The result indicates Fama-French three-factor model makes a better explanation about the variation of returns in the A-share market of China than the other two. Also, there is a bigger expectation and higher risk for the monthly excess return of portfolio with smaller size and higher B/M, and a smaller expectation and a lower risk for that with bigger size and lower B/M.Secondly, the market premium(MP), the size premium(SMB) and the B/M premium(HML), as a whole, its effect on excess returns is studied by canonical correlation analysis. The result displays that MP and SMB affect excess returns of almost all potfolios significantly, but HML only does for a part. What’s more, MP and SMB have a stronger effect on excess returns than HML.At last, the conclusion that Fama-French three-factor model suits explaining the returns of the A-share market of China and the three factors make different effects on excesss returns in the paper helps investors value stocks in the market reasonably and choose the optimal investment strategies.