Based On The Empirical Study Of The Effectiveness Of Market ¦Â

The Capital Asset Pricing Model (CAPM) not only is widely used in evaluating the performance of portfolios estimating the cost of securities, and so on, because of its concision and intuitiveness; but was empirically tested by some scholars home and abroad, for its important theoretic meaning and its character of being empirically tested. Though CAPM expresses the systemic relationship between expected returns and β, lots of empirical researches base on realized returns but expected returns.So we have the well-founded consideration that CAPM is not directly tested in this case. Unlike lots of previous tests, test in this paper bases on the consideration of expected returns. Not only a positive relationship exist between returns and β inperiods where excess market returns are positive, but an inverse relationship should exist between returns and β in periods where excess market returns are negative. Whether this theoretic linear relationship between β which is based on the condition of returns of market portfolio and returns can be supported by empirical data, especially, whether this linear relationship can be supported by the data from the security market of China, is original intention of the research of this paper.This paper looks back the general course of empirical tests abroad about CAPM, and sets out related papers to CAPM home. This paper in system expatiates the development history of theory of CAPM theoretic model meanings of theoretic model empirical model and the selection of empirical model. First, the paper researches the data of 164 stocks of issued ones from Jan. 1995 to Dec. 2002 with traditional method. We cannot approve the perfect systemic relationship of CAPM, with classical cross section method, and we conclude that it is weak that the positive linear relationship between returns and β. The results of positive test do notimprove yet, after correcting the model by widening samples capacity by adding parameter. The systemic relationship between β which is based on the condition ofreturns of market portfolio and returns is supported by empirical test, when we build new model by adding dummy variables. It makes clear that there is a kind of systemic relationship based on condition in security market of China, and this relationship will provide us a new recognition of β.