Empirical Tests On Chinese Stock Market Based On Prospect Theory

The research on stock yield has always been the focus at home and abroad.On top of that,the domestic stock market is mainly composed of individual investors,most of whom are quite irrational.Therefore,evaluating the domestic stock yield better deserves deeper thought.With the development and maturity of behavioral finance,the foreground theory is suitable for the practical use in the study of domestic stock yield.This paper collects and organized the monthly data of the domestic A-share market from January 2007 to October 2017(totally 130 months)to conduct an empirical study.The paper evaluates Prospect Theory Value and studies the relationship between subsequent stock yield and prospect theory by utilizing multivariate grouping and other methods.It is found that the higher the theoretical value of the stock,the lower the subsequent yield.This effect is very significant and relatively stable.And it is still significant when changing the interval,period,method of calculating the yield,etc.The theoretical model coincides with the empirical results.After that,this paper utilizes Fama-French method to build a new six-factor model,and the six-factor includes the market average return,market capitalization,book value to market ratio,profitability,investment,prospect theory value.It is resulted from the empirical experiment that the new six-factor model has stronger explanatory power than the Fama-French three-factor and five-factor models.From the empirical results of this paper,it is obvious that the stock yield of our country is greatly influenced by irrational factors.This paper also provides a new perspective for the research on domestic stock yield.