Empirical Evidence For The Four Factor Model Based On Contrarian Effect In China Growth Enterprises Market

Classical capital asset pricing model,Fama-French three-factor model and Carhart four-factor model are widely tested in foreign capital market.They have been validated in different kinds of asset,also in different financial markets all over the world.Meanwhile,many domestic scholars are applying these classic pricing theories from the west to the capital market of China,trying to sort out the general pricing rules of domestic capital market.The purpose of this paper is to test the applicability of four-factor model based on contrarian effect in China growth enterprises market(GEM)by empirical analysis,after having an insight of the scale effect,value effect and momentum or contrarian effect of GEM.Firstly,starting from the origin and development of capital pricing theory,this paper reviews the logical process from the development of traditional financial theory to modern behavioral finance,and analyzes the basic concept,the development of pricing thought and the evolution of core pricing model in western traditional pricing theory system.Thus,to provide a theoretical basis for the further research of the paper.The empirical part of this paper is based on the data of 148 stocks from GEM from June 2010 to December 2016.The empirical results show assertive evidence of scale effect and value effect in GEM,and the scale effect premium is significantly higher than the premium of value effect.Momentum and contrarian effect is observed according to both weekly and monthly returns.Research shows that contrarian effect exists in short-term when the formation and holding period are both less than two months,while momentum effect exists in medium-term when the formation and holding period are both in between two months and one year.Stocks of small scale and high transaction volume have enhanced contrarian effect than those of big scale and low transaction volume.Finally,the FF three-factor model and four-factor model are used into empirical research.The results show that four-factor model can explain the variation of the stock return rate of GEM better than three-factor model.And what's more,while including the momentum factor with one-week formation,the four-factor model is effective in pricing ultra-short-term contrarian effect.