CAPM Model Testing and Factor Analysis

Abstract

The relationship between the risk and return of stocks has always been a hot topic of research by scholars from various countries. This paper uses daily data from six stocks in the Chinese market from January 1, 2020 to December 31, 2021 to calculate individual stock returns and conduct CAPM testing. In order to avoid the non-synchronous trading problem, this paper also conducted conditional CAPM testing and compared the results with traditional CAPM testing. In addition, this paper constructed a single group and a double group investment portfolio for 42 stocks in China, with the single group based on the return on equity, size, and market risk of the stocks, while the double group based on the return on equity and size of the stocks. It was found that the portfolio was difficult to achieve stable positive returns. Finally, this paper also analyzes the corresponding risk factor, profit factors and scale factors, and finds that these factors can not reflect the returns of individual stocks well.