An Empirical Study On Chinese Stock Market Based On Conditional CAPM With Macroeconomic Variables

Modern asset pricing theory started from Markowitz’s mean-variance theory and experienced the evolution from single factor to multi-factor.However,followup research found that the multi-factor pricing model has many shortcomings.When the static asset pricing model fails to price all A stocks in China,the time-varying conditional beta becomes an exploration direction of the asset pricing model.This paper mainly studies four issues: First,static classic asset pricing models are often used as a benchmark for comparison,then how applicable are they to all A stocks in China.Second,whether the introduction of the conditional CAPM model with macroeconomic information can improve the performance of the asset pricing models.Third,how to explain the anomalies of cross-sectional return of asset portfolios,and how to deeply analyze the changes of risk of companies with different characteristics in different economic environments,using the conditional CAPM model with macroeconomic information.Fourth,robustness test on the conditional CAPM model with macroeconomic information by reorganizing the samples in different periods and in different industries.This paper first constructs the conditional CAPM model that introduces macroeconomic variables.Based on domestic and foreign literature and Chinese economic reality,this article systematically selects 12 macroeconomic indicators as candidate variables from both internal and external factors,and constructs the conditional CAPM models with single economic variable and multiple economic variables.Then,this paper takes all listed companies in China’s A-share market as a sample,constructs 25 portfolios with reference to the methods of Fama and French,and systematically studies the explanatory effectiveness of various models in the Chinese stock market.These models include 4 classic asset pricing models(CAPM,consumption-based asset pricing model,investment-based pricing model,FamaFrench three-factor model),12 conditional CAPM models with single economic variable and 6 conditional CAPM models with multiple economic variables.According to the estimate results,the conditional CAPM model with single economic variable and multiple economic variables with the best explanatory power have been selected.This paper also finds that money supply M,exchange rate EXRT,and inflation CPI are important pricing factors,which have significant expression of the time-varying characteristics of market betas.As far as the direction of influence is concerned,M has a significant positive impact on portfolio return and a significant negative impact on conditional beta,EXRT has a significant negative impact on portfolio return and conditional beta,CPI has a significant negative impact on asset portfolio returns and conditional beta.Next,this paper uses different asset pricing models to perform time series regressions on 25 portfolios,and the change trajectory of the beta coefficient can be obtained through the functional relationship between beta and macroeconomic variables.If beta does have time-varying characteristics with the macroeconomic,the expected returns of the asset portfolios depend not only on the static market beta,but also on the trajectory of beta and changes in macroeconomic variables.This paper found that conditional beta reflects the change characteristics of the systemic risk of asset portfolio returns in different economic status,which can further explain the anomalies of the cross-sectional return of asset portfolios.Specifically,for companies with different characteristics,the systemic risk of small companies is generally higher than that of large companies;in terms of different periods,the average risk of companies in the period of low money supply is higher than that of the period of high money supply;integrating the characteristics of different companies and different periods.From a point of view,small companies are more sensitive to changes in the money supply,and their conditional betas have greater difference between the two periods of money supply.Finally,this paper uses two robustness test methods,which provide strong support for the model and conclusions of this paper.First of all,this paper considers the distortion of the asset pricing mechanism caused by the non-tradable shares,and conducts an empirical test on two sub-sample periods before and after the nontradable shares reform.Second,this paper regroups the sample based on the firstlevel industry classification of Shenyinwanguo,and conducts empirical tests on the full time interval,before and after the non-tradable shares reform.This paper found that since the stock market after the non-tradable shares reform is no longer restricted by non-market factors,all asset pricing models perform better after the non-tradable shares reform than before the non-tradable shares reform.For different industries,the money supply M is still an effective pricing factor,which has a significant impact on asset returns.The conclusion of the positive impact on the portfolio return and the negative impact on the conditional beta is robust.There are four main innovations in this article: First,in terms of the sample period,this paper takes into account the distortion of the stock pricing mechanism caused by the non-tradable shares,and examines the full time interval,before and after the non-tradable shares reform.Second,in terms of model construction,this paper comprehensively considers many domestic and foreign literature and Chinese economic reality,and systematically selects many macroeconomic indicators as alternatives.The scope of consideration of the macroeconomic indicators is very comprehensive.Third,in terms of the method of asset portfolio construction,this article reclassifies the sample of all A stocks according to the first-level industry classification of Shenyinwanguo.The construction elements similar to the 5*5grouping of Fama and French make it both having the comparative basis and considering the emphasis of different industries in financial practical studies.Fourth,in terms of data processing methods,this article uses two methods — one is cumulative growth rate and the other is first-order difference of the logarithm of the variables.Changes in macroeconomic conditions affect other factors in the covariance matrix of asset returns such as capital market liquidity and investor sentiment,which are then transmitted to the market beta coefficient,which in turn affect the systemic risk of stocks.For investors,attention should be paid to the dynamic characteristics of asset portfolios’ systemic risk,because the time-varying part of risk of beta cannot be diversified through asset portfolios.The dynamic conditional beta has guiding significance for investment decision-making,which is incapable of static asset pricing models.