Empirical Tests On The Asset Pricing Models Of The Stock Market In China

CAPM and APT have been widely applied to the stock market in China and it's of great importance to make the empirical tests on the two models. The dissertation purposes summarizing the two asset pricing models and deriving some useful results by using the data from China's stock market in the period 2001-2005. Thus we can know more about China's stock market and make more effective investment strategy.The daily closing prices of 100 sampling stocks are chosen from Shanghai stock market and tested if they conform to CAPM and APT. Before we did the empirical tests of CAPM, We analyzed the characters of betas and got some useful results, according which we designed more effective methods to test CAPM. As to APT, firstly we used the approach which was used by Roll and Ross in their classic study of APT, and then we examined the numbers of the stocks and also tested APT against the "Own Variance" effect. To see which one of the two models the data supports better, we carried the analysis further on the performance measurement of CAPM and APT.We tested the two asset pricing models by new data and long period sample comprehensively. The results show that China's stock market doesn't conform to CAPM and that APT with multiple factors provides a better indication of asset risk and estimates of required rate of return than CAPM which uses beta as the single measure of risk, though the factor structure isn't steady.