The Asset Pricing Implication on CSI 300 Index China of Monetary Policy Announcement

Sammanfattning: Based on Fama-MacBeth method, three stages of regression are conducted to explore the relationship between stock beta and its excess return from 2003 to 2017 on the Chinese stock market in this paper. This thesis aims to explore the effects of monetary policy on the relationship between market beta and average excess return. We also try to distinguish the impacts of different monetary policies on the Chinese stock market, including interest rate policy, required reserve ratio policy and other policies. A significant negative correlation between market beta and average excess return is found on announcement days on the Chinese stock market. However, on non-announcement days, there is no strong evidence to prove that beta risk premium is different from zero. For different kind of monetary policies, we find that required reserve ratio policy has the strongest effect on the Chinese stock market. Furthermore, we can also conclude that the CAPM does not hold on any types of trading days in Chinese stock market, which is in line with the earlier empirical studies about the Chinese stock market.