Comparison Of China’s A-Share Factor Models

Asset pricing has always been an important direction in the field of finance,and scholars at home and abroad have tirelessly sought a factor model that explains the stock excess rate of return more strongly,and then many well-known asset pricing models have emerged,such as CAMP,Fama-French three-factor model,Carhart 4 factor model,Fama-French five-factor model,etc.With the development of China’s stock market,Chinese scholars have improved these models,considering the unique"shell value" problem of China’s stock market,eliminating the smallest 30%of companies with market capitalization,and using EP to replace the book value ratio of the Fama-French three-factor model to construct a value factor,proposing a CH3 factor model,and then considering the turnover-factor to introduce the turnover rate factor to construct the CH4 factor model,and then Liu,Zhou,and Zhu(LZZ,2019)builds a new trend factor based on the Chinese stock market by including transaction information,and replaces the turnover rate factor of LSY-4 with it.Asset pricing models have different explanatory capabilities for different markets,and the research topic of this thesis is based on the Chinese stock market,comparing China’s mainstream factor models to find the model with the strongest explanation of China’s stock returns.By discussing the asset pricing model and development theory,the understanding of the background and development of various theories is strengthened,the monthly return rate of all A-share stocks and the financial information of listed companies from January 2000 to December 2022 are selected,and the factors contained in the mainstream factor models such as CH3,CH4,FF5,Carhart4 and LZZ4 are descriptively statistical analysis and correlation tests,and the differences in the interpretation of the yield of China’s A-share market are compared by GRS test.The results show that the correlation between the factors is low,and LLZ4,that is,the model containing trend factors,can better explain the fluctuation of excess yield,which is more suitable for the Chinese market.The main contribution of this thesis is to enrich the relevant research in the field of asset pricing in China,and analyze the differences in the ability of different pricing models to explain China’s market.The research results have certain reference significance for the theoretical analysis and empirical testing of asset pricing models and the application of value investment strategies in China’s stock market.