Does Investors Profit By Beta

According to Frazzini and Pedersen(2014), they have found that the flat SML across the developed countries' financial markets, as well as the decreasing Sharpe ratio. Thus they constructed a portfolio/factor, named BAB, to test whether such phenomenon could make profit. They have proved that such portfolio can beat the market. What's it like in China? Does Chinese market exist such fact? Does Chinese investors make profit by constructing the portfolio? Does Chinese financial market also result from some index? In my thesis, I construct the Chinese portfolio named BABcl23, and test whether such portfolio (factor) can profit.As a result, I have found several facts. First, there exists flatter CAPM in Chinese market, as results show the decreasing alpha together with the decreasing Sharpe ratio in China. Second, according to the all-time sample, my BABc3 can fit the Chines market more than any other trial It shows about 0.8% profit per month after the adjustment of four-factors, which means that such construction of portfolio can also work in China. Third, according to my test to three minor samples, I found that the BABc perform better as the Chinese financial market grows, supporting evidence from the third minor sample which tells that the recent performance of BABc can profit about 0.5% per month after the risk adjustment. Fourth, I use FM regression to test whether BABc can be a new factor, and whether some accounting index can explain the extra return. The results are that BABc has been priced in Chinese market, and three index(e.g. ROA) can explain the extra return. However, the new factor conclusion still remains to be considered.