Empirical Test on CAPM Model of China's Stock Market by Industry Grouping

Abstract

Capital Asset Pricing Model (CAPM) is a hotly debated issue of modern financial theory research, and the viability of the capital resource evaluating model in China's flow capital market requires further experimental examination and testing. The indexes of 27 industries and the Shanghai Shenzhen 300 index are taken as the research objects, and the day to day exchanging information from January 5, 2015 to December 31, 2021 are used for regression analysis. This study assesses the risks and rewards of each business by computing the coefficients for various industries throughout various time periods. It then verifies the accuracy of the CAPM model by using the linear relationship between the average return rate and coefficients. Although the return on the stock market is linearly connected with the beta coefficient for the majority of regression findings with a shorter time horizon (less than 100 days), systematic risk is insufficient to account for the expected return on the stock portfolio, which is in conflict with the theoretical assumptions of the capital asset pricing model. Meanwhile, the regression's fit coefficient is modest, indicating that other risk factors have a non-negligible impact on stock returns. For the regression results divided by longer maturity as well as 40 days as maturity, the stock market return shows a non-linear correlation with the beta coefficient. Thus, it may be said that the CAPM model does not apply to the stock market in China.