Research On The Applicability Of Noise Trader Risk & BAPM In China Capital Market

The research on classical financial asset pricing model has been very mature and sufficient.Its key theoretical basis is the assumption of rational economic man which regards that noise trading has little influence on asset price.The theory of Efficient Market Hypothesis(E MH) describes noise as a zero mean disturbance term.As time proceeds,noise will eliminated by arbitrage and asset price is rectified.Based on the various anomalies in China A shares' market,we can find that the behavior of noise trader has considerable influence on asset price.Noise trading is the representative trading strategy that differs from information trading.It's based on the development of behavioral finance theories.The globalized research on noise trader risk(NTR) and related models gives financial world challenges and opportunities on asset pricing.Therefore,it is practical to introduce bounded rationality and apply NTR related pricing model when evaluating Chinese shares.The main purposes of this paper is utilize noise trader risk and Behavioral Asset Pricing Model(BAPM) in China A share market to see whether noise trading exists. Most of the paper are devoted to summarize behavioral financial literatures to have a clear understanding of noise trader risk and related behavioral asset pricing models; use China A share market data to portrait noise trading;explain the forming of noise trading.At last,we will derive NTR from the comparison of Capital Asset Pricing Model(CAPM) and BAPM.The conclusions of this paper are:(1) Noise trading exists in China A shares' market.(2)Institutional investor can reduce the extent of noise trading in the market. (3) BAPM is the better approach than CAPM when evaluating listed companies in China A shares' market.Finally,in order to construct a healthy and efficient capital market,this paper tries to raise several practical suggestions and policy recommendations according to different parties in China A shares' market.