| Summary: | The CAPM model attempts to represent people's complex investment decisions
through a series of rigorous assumptions about the real stock market. The CAPM
model attempts to express people's complex investment decisions in terms of
numerically calculated utility values. However, the conditional assumptions of the
CAPM model cannot really be met, even in more mature equity markets. As an
important theory of financial asset pricing, the applicability of the CAPM model in
real capital markets is naturally attracted to research. In this paper, the Shanghai
and Hong Kong stock markets are used as the subject of study to test the validity
of the CAPM model for the period 27 November 2016 - 21 November 2021. The
test is based on the Fama-Macbeth Approach, in which the portfolios are no longer
grouped in order of β size, but a representative market portfolio is selected as the
portfolio for time series regression and cross-sectional regression on market
indicators (method from Wei, 2016). The regression results show that in the time
series regression, both the Shanghai equity market and the Hong Kong equity
market exhibit a linear relationship between the excess returns of the portfolio and
the excess returns of the market, but in the cross-sectional regression, the linear
relationship shown by the CAPM model exists in the Shanghai equity market for
only one time period, while in the analysis of the Hong Kong equity market, there
are two time periods that conform to the CAPM model. In contrast, the CAPM model
is more valid in the Hong Kong market than in the Shanghai equity market, but
overall, the CAPM model is not applicable to both markets.
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