Font Size: a A A

Does The Financial Crisis Improve The Price Discovery Function Of Chinese A-share Market?

Posted on:2018-05-19Degree:MasterType:Thesis
Country:ChinaCandidate:P ChengFull Text:PDF
GTID:2359330515993773Subject:Finance
Abstract/Summary:PDF Full Text Request
It was a controversial issue that whether the capital asset pricing model(CAPM)or the Fama-French three factor(FF3)model is suitable for Chinese market,which has been the focus of financial economists in China.In the early literatures,some scholars believe that the CAPM model was tested well in A stock market in China,but in the later empirical tests,effectiveness and explanation of the CAPM model have been questioned by some scholars.They found that the systematic risk is not the only factor affecting stock returns and cannot fully capture the stock returns.There are other risk factors that will affect the assets pricing and the forecast conclusion does not fully comply with the capital asset pricing model.Then based on the Fama-French three factor model,there are some scholars found that there is a scale effect and a value effect in the A-share market in China.But some other scholars have found that the value effect does not exist in our market,they think that the three factor model also cannot fully explain Chinese stock returns.Lately,Fama and French(Fama & French,2015)added the profitability and the scale of investment on the basis of the original three-factor model,and proposed the five-factor model of capital asset pricing.Many scholars have found that the Fama-French five-factor(FF5)model has been well proven in many mature markets.Recently,some domestic scholars have applied the five-factor model to our Chinese A-share market and there are still different,even contradictory discoveries.Some scholars found that the three-factor model is more suitable than the five-factor model of Chinese A-share market,but others think the five-factor model has a better explanation of Chinese A-share market.What are the reasons that lead to the differences in the above empirical findings? This issue has recently attracted wide attention from scholars.Some scholars indicate that the existence deviation of the sample is the reason(whether excluding the financial stocks;whether only choose one stock exchange,etc.);some scholars believe that the differences in the length of selected data(short-term or long-term data,data from the market with rise stage or fall stage),time node(at the end of last year or by the end of April each year or the end of June etc.),or the weight of the stock portfolio(the market value of the stock or the total market value,value weight or equal weight etc.)are the reasons.This paper is been put forward under this background.We try to find a new reason to explain the significant differences in the empirical results of the various capital asset pricing models in Chinese A-share market.In this paper,we regard the financial crisis in 2008 as a starting point,trying to explore whether the financial market after the crisis has a better price discovery function.The paper divides the market into three periods of the financial crisis in 2008,namely,before,during and after the crisis.At each time,we use the Fama-French three-factor model and the five-factor model to test the difference between the two pricing models in different periods to prove whether the financial crisis has improved the price discovery function of Chinese A-share market.The empirical results show that after the financial crisis,wehter the Fama-French three-factor model or the five-factor model,the price discovery function of the A-share market in our country has indeed been improved to a certain extent.Specifically in the following:(1)In the latter part of the financial crisis,the new profitability factor(RMW)and the investment scale factor(CMA)have a better explanatory power to the return on assets,that is,FF5 factor model' sperformance after the financial crisis is better.(2)Compared to the FF3 factor model,we use the number of the intercept significantly different from zero and the coefficient of each factor as the benchmark,finding that the FF5 factor model performed better than the FF3 factor model in the three stages.(3)Whether it is the whole sample range or the three stages of the financial crisis,the market factor and size factor are the strongest factors toexplain Chinese A-share returns.What is different from the performance of the US market is that the book market value ratio factor in Chinese market is not redundant.In our stock market,the profitability factor(RMW)is more statistically significant than the investment size factor(CMA).(4)In addition to the book-to-market ratio factor(HML),the other four factors exsit February effect with statistically significant.In particular,the February effect of the profitability factor is negative,but the February effect of the investment scale factor is positive.From the whole,the market in the first half of the year is stronger than the second half of the year and the spring market is especially better.Why the price discovery function will be improved after the financial crisis washing ?We found that,before the crisis,Chinese stock market experienced a wave of the bull market,investors do blindly optimistic investment and have the psychology that they will earn much whatever they buy.This reflects the irrational investment decisions.The financial crisis has caused extreme panic in the stock market of our country and it also exposed the irrational decision of the investors.However,in the wake of the financial crisis,the market gradually return to rational,the rules of the market tends to refinding,the transparency of information improved,investors' rational investment dominates,these factors can lead to better market price discovery function in a certain extent.
Keywords/Search Tags:financial crisis, price discovery, CAPM, Fama-French five-factor model, Fama-French three-factor model
PDF Full Text Request
Related items