The Transmission And Effects Of Multi-level Capital Flows Information

As one of the core researches in modern financial studies, the capital asset pricingproblem is always on concern. However, the investors usually find it difficult toanalyze stock price since its various factors. As we all know, most of the existingliteratures came from long-term observation of stock prices behavior or purelystatistical means, which is so-called "Find essence from phenomenon ". However, inthe face of the complex securities market, this approach often seems to be fragmented,and less economical and less logical reliability. Theoretically, commodity price isdetermined by supply and demand, as the same, the volatility of stock prices is alsoactually determined by supply and demand. As the demand side of the stock, investorsare most concerned about two main points, on the one hand, through enterprisequality assessment to determine their long-term intrinsic texture, on the other hand, bythe current market trends, stock prices and trading conditions to determine thepossible short-term profit, of which the former is called intrinsic value, and the latteris called transaction value.Capital flow information not only reflects the supply and demand of stock market,especially short-term, but also reflects the transmission process of enterprise intrinsicvalue as well as the status of macro capital. Besides, other factors can also beinseparable from this important carrier, the various forms of capital flows to someextent reflects the impact of these factors. Hence, this paper argues that capital flow isthe most direct and most effective factor of stock price changes, and thus has higherinformation content to predict future stock returns.Hence, we argue that capital flow is the core factors of stock price movement, wecan more clearly and objectively describe the entire process including macro liquidity,business activities and financial management and investors trading activities. Thus,we can do asset pricing research in China stock market from capital flow perspective.This paper has theoretical and practical significance, because it not only maketheoretical supplement to the pricing of financial assets, but also provide useful reference for investment activities.Based on the above background, we proceed with the capital flow idea to build anindicators system (including existence, flow, stability, continuity, etc.) from macro,corporate and market levels, and to analyze the information content and predictivepower of them with different time periods and stocks. By establishing the analysissystem of capital flow indicators, we provide a new perspective for asset pricing.After defining the concept of capital flow and review the previous literatures, wefirst demonstrate the relationship and information transmission mechanism amongmacro, corporate and market levels capital flows. Then we build capital flowindicators and found which of them are effective from the three levels respectively.Finally, we combine the effective indicators from the three levels into a multi-factormodel to make a portfolio, and find that the portfolio of capital flow can help to gainconsistent excess returns.The main innovations of the paper are as follows:(1) Different with traditional asset pricing, we argue that it is necessary toestablish a unified framework, based on the perspective of capital flow analysis, tostudy the price information content and delivery mechanisms of the stock factors,which provides a new way to asset pricing.(2) We systematically analyze the mutual transmission mechanisms of thecapital flow among macro, corporate and market levels, proving the theoretical basisto the capital flow method.(3) The paper not only study each capital flow indicator respectively, but alsocompare them and combine them with different stock groups and under differentmarket conditions, after study the similarities and differences of among theseindicators.(4) We find that, although all levels of capital flows have some information onstock price, the comprehensive capital flow combined by a reasonable way willfurther significantly increase the information content, thereby prove the effectivenessof capital flow analysis.