Equity Risk Factors And Economic Growth

The stock market has been seen as a barometer of the economy, the stock market and the real economy is closely related to research Stock market returns and economic growth are the focus of scholars, but the relationship between macroeconomic trends and stock market seem to not so clear in our country. This article was inspired by constructing the portfolio, the decomposition rate of return to study the stock market equity risk factors and the relationship between economic growth, whether it has a barometer role.Fama-French three-factor model is widely used to explain the stock market excess returns, but in recent years Chen-Zhang model is also a good explanation of national stock markets visions. This essay uses these risk factors to add in the model as a stock market returns portfolio to strengthen ability of predicting future economic growth.we also constructed a five-factor model in order to enhance the ability to explain China’s macroeconomic trends. Fama-French three-factor model of stock market risk factors include HML, SMB and MRF, Chen-Zhang model include INV, ROA and MRF, five-factor model include HML, SMB, INV, ROA and MRF. In this thesis, three various portfolio risk factors HML, SMB, INV and ROA were made descriptive statistics, statistics showed that the three HML portfolio yields a positive value, the yields of SMB is negative, INV is a negative value, ROA is positive.This thesis uses three ways to resolve China’s future economic growth forecast force by Fama-French three-factor model, Chen-Zhang model and the five-factor model. The results show that using distributed lag models and methods of data based on rolling can better explain future economic growth, based on L-V structural model is a poor predictor. In the distributed lag model and the method of data based on rolling risk factors HML and ROA empirical test results are in line with expectations, risk factors SMB and INV empirical test results is contrary to expectations. In the distributed lag model and the five-factor model can not explain the GDP growth rate, the value of each risk factor is very low coefficient T, pass the test of significance. However, in the method of data based on rolling five-factor model relative to the Fama-French three -factor model and Chen-Zhang model has better explanatory power, it may be because the data increases rolling sample period.Neither Fama-French three -factor model nor Chen-Zhang three -factor model based on L-V model are not significant at the 10% level.