Quantile Regression Analysis of Cross-Section Returns in Chinese Stock Market

Based on the three-factor model (Fama and French, 1993) and two-stage FM method (Fama and Macbeth, 1973), this paper employs quantile regression technique to analyse the relationship between cross-section returns of all A stocks in Shanghai and Shenzhen stock markets and risk factors which include company specific variables(trading volume, company size, book-at-market ratio) and market macro variables(risk-free rate, term structure of interest rates). Empirical results show that: (1) there exists significant differences between the results of Ordinary Least Squares(OLS) and quantile regression; (2) the values of Beta risk are different for overperform and underperform stocks, which contradicts with the traditional CAPM theory; (3) company specific factors can effectively explain cross-section returns, while there exists only weak correlation between cross-section stock returns and markets macro factors.