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Applying the Financial Distress Prediction Model on the Capital Asset Pricing Model and Abnormal Return for the Listed Companies of China

FirstTech Institutional Repository


[[abstract]]Abstract At first this paper uses logit regression to construct a financial distress prediction model in the stock market of China The research samples are the companies of the A-share in the stock market of Shanghai and Shenzhen at 2003 The empirical result finding that there are five explanatory variables significantly and uses special treatment companies of 2004 and 2005 to test predictable ability of model By the model the correct classified rates of 2004 and 2005 are 84 38% and 96 29% respectively The secondly using the three factor model with Fama andFrench (1993) to probe into the excess returns of companies Trying to use the distress probability estimated of logit regression model substitute B/M factor in the three factor model The results investors will ask for higher risk premium in the companies of small size and high distress probability This result shows the risk factor can effectively explain the excess returns of the company Finally our research will discuss the cumulative abnormal returns before ST event The results the production of the cumulative abnormal returns from previous 20 days to the last day before special treatment event was most obvious The distress probability and proxy for predisclosure information are signifying in the model

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