An Empirical Study of CAPM’s Applicability to Rare Earth Permanent Magnet Material Stocks

Abstract

China has the world’s largest reserves of rare earth elements. Rare earth permanent magnet material has always been one of the popular industries in the investment market. CAPM is the basic asset-pricing model in financial economics. There are a number of studies conducted to examine the applicability of CAPM to stock markets in different industries and to investigate the modification method to improve the model’s prediction accuracy. In this study, seven leading enterprises in China’s rare earth permanent magnet material industry listed on the A-share market were selected as the research subjects. Based on CAPM, regression analysis was conducted on the monthly data from March 2016 to February 2022. The results demonstrated that using the ? coefficient to explain the risk of China’s rare earth permanent magnet industry is ineffective. The ultimate benefit was less affected by market indexes but mainly by non-systematic risks. CAPM has low applicability to China’s rare earth permanent magnet material industry and requires further improvement. Nevertheless, CAPM still has some guiding significance in making enterprise comparisons and investment decisions.