Analysis Of The Influencing Factors Of The Chinese Stock Market Returns

Asset pricing is the important object of modern finance,and various asset pricing models attempt to identify the yield differences between the influencing factors.It is well known that Markowitz Mean-Variance Model quantified risks and returns.And then Capital Asset Pricing Model(CAPM)proposed by Sharpe et al.illustrated the factor ? which affect the return of asset theoretically.Fama and French(1993)proposed Three-Factor Model,which has been proved widely the validity of the size factor and the value factor.Fama and French(2015)added the profitability factor and the investment factor to the former Three-Factor Model to establish a new Five-Factor Model.The empirical test of the Five-Factor Model through the American Market proved its effectiveness and also suggested that HML was a redundant factor.The explanation of asset pricing models vary from market to market.For the Chinese stock market,whether the Five-Factor Model is appropriate is to be tested empirically.This paper attempts to capture the size,value,profitability and investment patterns in average stock returns of Chinese market by the empirical test of the Five-Factor Model.This paper selects all A shares,including Shanghai Stock Exchange and Shenzhen Stock Exchange,from May 1995 to April 2016,204 months totally as objects,through the companies'financial data and monthly trading data to construct five factors.By the factors' descriptive statistics,this paper finds that the size factor and the value factor are significantly positive statistically,and the profitability factor is also significant relatively.But the market factor and the investment factor are not significant on statistics.At the same time,this paper constitutes portfolios according to Fama and French(2015)and calculates the portfolios' monthly excess return.Then,this paper uses the Five-Factor Model to regress the portfolios' returns,illustrating the validity of the model and the factors by the comparison between the Five-Factor Model and Three-Factor Model.The empirical test concludes the improvement of the Five-Factor Model over the former Three-Factor Model.The regress results shows the significance of the market factor,size factor and the value factor.The results also shows the profitability factor is partly significant,while the investment factor is not significant.The empirical examination of this paper proves that the Five-Factor Model is not perfectly appropriate for the cross-section returns of the Chinese stock market.For the future research,some other risk factors on the basis of Chinese markets' characteristics could be added to the multiple factors models.With the development of Chinese stock market and the abundance of data,asset pricing theory would make more progresses.At last,this paper makes suggestions to the investors and the regulatory authority.