| With the latest data we use descriptive statistics, pooled regression and panel model toexamine the existence and interpretation of value premium in China’s A-share market.Based on book-to-market ratio, we construct value portfolio and growth portfolio. Byre-examine the constitute of market portfolio and risk measurement under CAPM, wecontain bond yield in market portfolio to simulate investor’s fixed-income exposureand choose semi-variance as a risk measure to focus on lower partial risk, which ismore in line with actual investor psychology and behavioral finance theory. Andexamine whether the new model can explain value premium in A-Share market.Our finding suggests that under classic CAPM, value premium significantly exist inChinese A share stock markets, whether do we consider time-varying beta or not. Andcontaining bond yield in market portfolio can improve model explanatory power foroverall market fluctuation, contributing to mitigate value premium, but still can’texplain this market anomaly. However, introducing new risk measurement to CAPMcan give better explanation to the difference in returns between portfolios, making itpossible to explain value premium under CAPM framework.Our finding indicates that value premium in A-share market is partly due to modelspecification. By considering down-side risk, we can considerably improve theexplanation power of CAPM. And the reason why containing bond yield in marketportfolio fail to explain value premium may be bond index construction bias,relatively low degree of marketization in Chinese securities markets, unbalanceddevelopment in different markets and separation from one another. |
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