Interpret Anomalies In Stock Market By Q-Factor Model

The continuous development of asset pricing theory is being drive by ever-growing and perfecting capital market.Experts and scholars have continued to explore the pricing of stocks in the capital market.Fama and French(1993)proposed the three-factor pricing model as the founder of multi-factor pricing theory.Then Carhart(1997)proposed the four-factor pricing model which improved the development of multi-factor pricing theory.Fama and French(2015)proposed five-factor pricing model which introduced more pricing factors.Hou,Xue,Zhang(2015)proposed a Q-factor pricing model based on investment Q theory.Whether the model based on investment theory can improve pricing power? This paper attempts to test the pricing power of the Q-factor pricing model by examining the ability of the model to explain shock market's anomalies.In order to evaluate the pricing capability of multi-factor pricing models,this paper selects the beta effect,net stock issue effect,volatility effect,accrual profit effect,momentum effect,B/M effect and investment effect as shock market's anomalies.These seven cross-market anomalies more fully describe the anomalies that exist in the stock market.This research also constructs the test standard of the pricing power of the evaluation models,and analyzes the models through five kinds of evaluation indexes.At the same time,in order to more directly analyze whether the Q-factor pricing model improves the pricing model's ability to explain the market anomalies,this paper compares the Q-factor pricing model with Carhart four-factor model,Fama-French three-factor model and five-factor model.The empirical research results of this paper show that the Q-factor pricing model has strong explanatory power to seven kinds of cross-market anomalies.But the investment factor and profit factor in the model have weak explanatory power for large-scale stocks and small-scale stock returns.Hou,Xue,Zhang's Q-factor model has also improved its ability to explain certain market anomalies compared to the other three pricing models.At the same time,the Fama and French three-factor model and five-factor model may have problems of over fitting.Therefore,this paper believes that the Q-factor pricing model explains the anomalies existing in the stock market well,but it also needs to accept more market anomalies and more comprehensive evaluation criteria.The pricing power still needs further improvement to interpret anomalies of large-size stocks and small-size stocks.