| dc.description.abstract | It’s been a long time that many disputations exist in explanation of CAPM single-factor model and there are many researches to explanation of system-risk beta. Multi-factor model and many relevant researches to basic financial factor were not developed until year 1976 that Rose raised the arbitrage pricing theory, such as three factor model of Fama and Frehch (1992). Meanwhile, there also some researches reveal that unstable situation appears on the displays of relevant variables under different bull and bear trends.
There are three major parts in this research. The first part is to check if single-factor model of CAPM can give a full explanation for Taiwan stock market or not. And it is based on Fama and Macbeth’s (1973) empirical model by using monthly data. The second part is to check the explanatory ability for various variables in predicting the rate of return for stocks. The multi-factors model is learnt from several basic financial factors of Fama and French (1992) by using quarterly data, such as firm size, book-to-market ratio, EP ratio, leverage and so on. The third part, we use dummy variable as well as multi-factors model to observe the change for the explanation ability between various variables under different definition for the bull and bear. Under this part, we refer the three ways to discriminate the bull and the bear from Fabozzi and Francis (1977). And we adjust the bull and bear definitions into short, medium and long terms respectively and compare rate of daily return for specified stock. This research is subject to the completed quarterly financial statements from 56 firms listed on Taiwan Stock Exchange for the period from October 1986 to Jun 2005. This research has been done by using GMM estimate method for case proven. We also learnt and made the most use of the concept of noise ratio raised by Durlauf and Hall (1989). Finally, we have successfully compared the suitable for all models.
The conclusion of this research is as following:
Single-factor model of CAPM is unable to give a fully explanation to Taiwan stock market. Multi-factors model give better explanation than single-factor model, because not only system risk beta, but also firm size, book-to-market ratio, and leverage can explain the rate of return of specific stock. But when the bull and bear variables were jointed into multi-factors model, system risk beta could not have explanation ability to the rate of returns of specific stock, only book-to-market ratio and negative EP ratio can explain the rate of returns of specific stock, but the effect of the negative EP ratio is only for short-term. | en_US |