Validation on the Effectiveness of CAPM: Based on Data from China Growth Enterprise Market
DOI:
https://doi.org/10.54097/3j48a080Keywords:
β coefficients, CAPM, BJS method, FM method, China growth enterprise market.Abstract
Based on Markowitz's Portfolio Theory, Sharpe, Lintner and Mossin made contribution to advance the development of the Capital Asset Pricing Model. However, later research proves that the CAPM is not available in many markets. There are many researches showing that CAPM is not applicable in China’s asset market. The China Growth Enterprise Market, or CNX, is a crucial stock exchange designed to give high-tech, fast-growing businesses access to capital and expansion space. A number of studies show that the COVID-19 affected China’s asset market significantly, but the majority of relative research concentrate on the applicability of other asset pricing models, for example, the Fama-French factor models instead of CAPM. This study investigates the effectiveness of CAPM model from 2020 to 2022 using statistics of stocks selected from the China Growth Enterprise Market. This research selected 100 stocks in CNX and made sure the sample is composed of stocks in various industries. Then, this study collected monthly data of stock return, market return and risk-free interest rate from CSMAR database and Choice Financial Terminal. Afterwards it divided the data into three equal parts based on time scale and tested the correlation between CNX stock returns and the beta parameter through a combination of the BJS method and the FM method. These results show that from 2020 to 2022, CAPM is not effective in the China Growth Enterprise Market.
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