The Empirical Analysis Of Three Factor Model Of CAPM On The Individual Stock's Performance Of China's Stock Market

At present, the academic circles and stock investors pay close attention to the stock valuation theory and stock valuation method, because how the stock is valued and whether the valuation is reasonable, are directly linked to the vital interests of investors. To some extent, the evolution and development of the stock valuation theory and the valuation model affect investors' investment strategy and the operation of the market.This paper selects two representative stocks of Shanghai A-share stock market, one is the stock of state-owned enterprise stock, the Sinopec [600028], and the other is non state-owned enterprise stock, the Founder Technology [600601]. This paper first analyses the background of these two stocks, namely: the situation of the two stocks when they were first listed, the registered capital of the main background, the listing date, the main business as well as the recent financial summary. On this basis, this paper use the Fama-French three factor model to make an empirical analysis of asset pricing for two sample stocks. Respectively, the empirical analysis has been made in the stock market rising stage(2005.7-2007.10), the decline stage(2007.11-2008.10)and the fluctuation stage(2008.11-2014.3), in order to decide the applicability of the three factors(market excess return, scale factor and value factor) in explaining problems of the stock return rate of change. The empirical results show that, the power of the explanation of the three factor model of large-scale state-owned enterprises stock are better when the stock market is in the rising stage; When the stock market is in the declining stage, the power of explanation for small scale non- state-owned enterprises is better; In the fluctuation stage, the explaining power of the three factor model on the two sample stock returns has been deprived to a certain degree.The stock market's rising stage is also China's GDP's rapidly growing period, during this period, the rapid development of the economy not only increases the demand for oil, but also stimulate the IT industry's production and sales growth, so the Sinopec's and the Founder Technology's revenue have grown with each passing day, the market expected return of the two stocks also increased. The three factors of the model in deciding the asset pricing also have better explanation ability.When the stock market is in decline stage, with the market expected to continue to expand and the transfer of international financial bubble, the bubble of China's stock market is gradually revealed. When the bubble was pierced after the financial crisis, stock prices fell sharply, and the Sinopec's and the Founder Technology's stock prices were strongly influenced. In theory, the three factor asset pricing model, especially the market excess return factor, has the drive power on asset prices' decline, so that the empirical results of CAPM is relatively good.In the fluctuation stage of the stock market, a large number of stocks' prices and values were distorted. From the perspective of the stock price earnings ratio, the excess rate of return changes of Sinopec stock can be explained by its price earnings ratio, while Founder Technology stock's price earnings ratio and price were fiercely fluctuated. The stock's price and its value were distorted, which, to some extent, had an bad influence on the three factor model's power of explain about the stock returns.