Empirical Reasearch Of Q-factor Model On Chinese Market

In this paper,Kewei Hou's q-factor model is empirically examined on Chinese market.In this paper,author tests the effectiveness of size factor,book-to-market factor,investment factor,profitability factor and momentum factor on Chinese market,as well as their combinations' explanatory power for A-share stock excess returns.For CSI 800 stocks,excluding financial stocks and other stocks inappropriate for samples,this paper counts month earnings data and financial data from January 2005 to December 2015,analyzes the benefits time-series of different factors,finding that,on Chinese market,book-to-market effect and investment effect has a significant relevance,which are both insignificant.However the momentum effect is significantly negative,meaning a short-term reverse effect.In this paper,two different combinations of factors are used for time series regression of sample stocks' excess return: The first combination involves the size factor,investment factor,profitability factor,momentum factor and market factor;The second combination is from the first one,excluding the investment factor,which has a lower significant level.Regression results of the two methods are compared and the model obtained from the second method has more explanatory power for excess return of stocks.And then,a q-factor model effective for China A-share market is determined.Finally,this paper also uses q-factor model in China stock market to forecast stocks' earnings and build an investment strategy of combination.The data before January 2013 is used to get factors' regression coefficients,and the data after that is used to backtest investment strategy.Without considering the cost of transaction,the strategy can obtain a portfolio performance with 21.97%annual yield,2.0786 Sharp Ratio and 3.63% maximum net-value retracement.In conclusion by analyzing the effectiveness of different factors and explanatory power of different combinations,the formation of asset pricing model appropriate for Chinese A-share market,has practically a certain guiding significance to discover the laws of the market and explore the market value.