The Empirical Research Of Profit Effect From Domestic A-share Market

For a long time,the relationship between risk and return is the focus of financial market research,and as the basis of modern financial theory,the effective market hypothesis can be widely used in the financial market.The efficient market hypothesis holds that the financial market can respond quickly and accurately to all information,and investors can not forecast the stock price and obtain the excess return according to the existing information.However,with the emergence of financial market visions such as scale effect,momentum effect,reversal effect,earnings announcement effect and book value ratio effect in financial market,the validity of Efficient Market Hypothesis and traditional asset pricing model poses a challenge.Supporters of some efficient market hypotheses argue that the emergence of financial visions is due to the neglect of some important risk factors in traditional capital asset pricing models.For example,considering that many foreign scholars find that the profitability and investment level of the listed company have explanatory power of the expected return of the stock,Fama and French(2015)propose a five-factor model in which the profitability factor and the investment level are added to explain the expected return of the stock,the empirical results show that the five-factor model is better than the three-factor model in explaining the expected return of the stock.Although China's stock market has developed more than 20 years,but compared to developed countries,more mature market,China's stock market is not mature,and most of the time it is not effective,so there be a variety of financial visions.In the comprehensive analysis of the future development prospects of listed companies and growth space,the profitability of financial information is often as an important indicator to be studied.As for China's A-share market,the listed company's financial information in the profitability of the stock do have an impact on earnings or not.If there is positive correlation between the profitability and the expected return of the stock,there exists the earnings effect;if there is negative correlation between the profitability and the expected return of the stock due to the characteristics of China's A-share market or the investors' behavior,there exists the earnings growth vision;This issue is not yet an clear conclusion,and it need to combine China's A-share market to get specific empirical research.Based on this motive,this paper analyzes the effect of the profitability of listed companies' financial information on the stock's expected return rate in China's A-share market by using the combination method of combination,three-factor regression and FM cross-section regression method,and tests the portfolio of different profitability stocks,and verify the existence and significance of earnings or earnings growth visions.The sample data used in the empirical study is from May 1997 to April 2015 of the A-share market,and select the three indicators of return on assets,total assets net profit rate,operating profit rate as the basis for measuring the company's profitability.In the sequencing and combining method,we divide the portfolio according to the profit index and get the three-factor regression of the portfolio returns,and then construct the scale-profit portfolio and book-to-market ratio-profit combination by 2*2 multi-factor grouping.In the cross-sectional regression method,this paper first use all the sample data without scale grouping and then divided all the sample data into three groups according to their size,and the empirical analysis was done by using the smallest group of data.The results show that:(1)The average monthly yield of the stock portfolio declines with the rising of the profitability in the combination method and the three-factor regression method,and it is more obvious in the small-scale group and the low book market value.And the three-factor regression term of monthly excess return ratio of stock portfolio decreases with the increase of profitability,and the difference of intercept term between the minimum earning stock portfolio and the highest earning stock portfolio is significantly positive.(2)Considering the book value ratio,the investment factor and the scale factor,the three financial indicators representing the profitability have the ability to explain the stock return rate,the regression coefficient is negative,and the profit growth is abnormal.After taking into account the scale factor,the three financial indicators on behalf of the profitability of the stock rate of return is still capable of explaining the regression,and coefficient is significantly negative,but the significance of varying degrees of decline,the overall profit growth still exist in the vision.And such explanatory power and earnings growth vision are particularly striking in small-cap stocks and low book value ratio stocks.In short,China's A-share market listed companies profitability index of financial information showing a negative correlation with the expected return on equity,there is no profit effect,and there exists significant earnings growth vision,and the vision is more obvious in small-cap stocks and low book value ratio stocks.In addition,the perceived significance of earnings growth vision declines after considering the size factor,but it overall remains significant.The conclusion also shows that the A-share market is still immature and the concept of value investment is lacking.The profitability indicators in the financial information of listed companies still have great limitations of correctly forecasting the profitability and future growth potential of the company.