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Testing the CAPM Model: A study of the Chinese Stock Market
Umeå University, Faculty of Social Sciences, Umeå School of Business.
Umeå University, Faculty of Social Sciences, Umeå School of Business.
2007 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

There have been countless empirical studies conducted to test the validity of the Capital Asset Pricing Model(CAPM)since its naissance. However, few have considered the Chinese Stock Market. The purpose of this paper is to test the CAPM to see if it holds true in the Shanghai Stock Exchange (SSE). We use weekly stock returns from 100 companies listed on the SSE during 2000.1.1 to 2005.12.31. Black, Jensen and Scholes (1972) (time-series test) and Fama and MacBeth (1973) (cross-sectional test) methods were used to test the CAPM.

We found that the excepted returns and betas are linear related with each other during the entire period of 2000.1.1 to 2005.12.31, which implies a strong support of the CAPM hypothesis.

On the other hand, as the CAPM hypothesizes for the intercept, is it should equal zero and the slope should equal to the average risk premium. However, the results from the test refute the above hypothesizes and offer evidence against the CAPM.

According to the findings of the empirical test, we conclude that the Capital Asset Pricing Model does not give a valid description of the Chinese Stock Market during 2000.1.1 to 2005.12.31.

Place, publisher, year, edition, pages
Umeå: Handelshögskolan vid Umeå universitet , 2007. , 44 p.
Keyword [en]
CAPM Chinses Stock Market
National Category
Business Administration
Identifiers
URN: urn:nbn:se:umu:diva-1011OAI: oai:DiVA.org:umu-1011DiVA: diva2:139969
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Available from: 2007-02-15 Created: 2007-02-15Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
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  • asciidoc
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