The Three-factor Model and China’s Multiple Stock Markets

Shi-Zhuan Han (), Li Zhang, Guang-Yu Han and Lei Wang
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Shi-Zhuan Han: School of Economics and Management, East China Jiaotong University, Nanchang, P. R. China
Li Zhang: School of Economics and Management, East China Jiaotong University, Nanchang, P. R. China
Guang-Yu Han: School of Economics and Management, East China Jiaotong University, Nanchang, P. R. China
Lei Wang: School of Economics and Management, East China Jiaotong University, Nanchang, P. R. China

Journal of International Commerce, Economics and Policy (JICEP), 2019, vol. 10, issue 03, 1-16

Abstract: This paper aims at discussing the applicability of the three-factor model in China’s multiple security markets. The monthly returns of Shenzhen Main Board Market, Shanghai Stock Market, GEM Securities Market and Small and Medium Board Securities Market from January 2012 to December 2016 are selected as samples. The following conclusions are drawn: the three-factor model is applicable in Shenzhen Main Board Market, that is, the change of stock return is proportional to market factor, book-to-market ratio factor, and inversely proportional to scale factor. Moreover, in terms of the explanatory power of the change of stock return, the market factor is the highest, the scale factor is the second, and the book-to-market ratio factor is the lowest. But in the other three markets, the two-factors model that excludes the ratio of book market value can explain the change of stock return better. In addition, the explanatory power of market factor is better than scale factor.

Keywords: Three-factor model; capital asset pricing model; stock return; China’s stock market (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1142/S1793993319500169

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