Research On The Effect Of Book-to-Market Ratio In Chinese Stock Market

In the analysis of the three-factor model applied to A-shares,domestic scholars were controversial about whether the book-to-market ratio effect was significant or not.With the development of Chinese stock market and the improvement of Chinese financial system,research articles have found that A shares have significant bookto-market ratio effects.some articles believe that the high book-to-market ratio means the company's higher financial risk.Conversely,the lower book-to-market ratio means that the company's financial risk is lower.The balance between risk and return determines that stocks which offer high book-to-market ratio might attract investors by owning higher return.Using valuation indicators to pick up listed companies which are mispriced compared to their inner value,investors can gain extra return.As one of the valuation indicators,book-to-market ratio could indicate the return of stocks.There are also articles contend that the book-to-market ratio effect is the price misalignment caused by the investor's behavioral bias.Therefore,it is rational to check the book-to-market ratio effect.Most scholars in the empirical study also add it as a factor to the model for further research.In summary,former authors got research results by using Fama-French's factor model with monthly data.Considering that investors in China's stock market are more susceptible to short-term news,this paper uses daily and monthly data of all stocks of A shares to reproduces the three-factor model.The result shows that in the descriptive statistics based on this two kinds of data,the book value ratio effect under the daily data is significantly stronger than the book-to-market ratio effect of the monthly data.However,based on the empirical test of two kinds of data,the book-to-market ratio factor does not contribute much to the interpretation of riskreturn,and three-factor model's ability to interpret big market value portfolio risk premium is greater than the small one.The interpretation effect on the monthly asset risk premium exceeds the interpretation effect of the daily risk premium.There is a short-term factor in researching the short-term return of stocks.Considering that stock return of small companies are affected by the shell value premium,this article excludes last 30% of the stocks according to the their market value.By doing so,this article strengthens the findings above.