A quantile-based empirical research of CAPM in China’s financial stocks

This dissertation tested whether the relationship between systematic risk and average returns of financial stocks in China consists with the CAPM(capital asset pricing model) theory, using the daily data of 2007 and comparing the method ordinary least square(OLS) with quantile regression. The result shows that, systematic risk is not the only determinant factor of financial stockspsila pricing in China, it contributes more for overperforming stocks than underperforming stocks. The influence of systematic risk is different for different stocks, for the value of beta is higher in overperforming stocks and lower in underperforming stocks. We also found that the risk-free rate should be negative. And beta is positively related to returns, but the increase of returns is obviously slower than the growth of systematic risk.