A test of CAPM in China's stock market

Abstract

Capital Asset Pricing Model (CAPM) developed by Sharpe, Linter and Mossin is an important milestone in the development of modern finance theory. For China's stock market, an emerging capital market, whether Capital Asset Pricing Model is valid or not needs to conduct further empirical research and testing. This dissertation selects 90 stocks from the Hushen 300 Index as the study samples, and the sample periods being from January 2010 to December 2010. With corresponding daily yield data, the CAPM model is estimated and tested, by using time series test and cross-sectional regression. This dissertation has found that CAPM model is not entirely applicable in China’s stock market and the impact of systemic of stock returns is weak. Because of the relatively short running time of the stock market and stock market is not mature, the market has been speculative and the stock prices were easily controlled. Overall, the CAPM is not valid in China’s stock market.