Systematic Risk and the Applicability of the CAPM across Digital Economy Sub-industries: An Empirical Study

Jingtian Yang

doi:10.6981/FEM.202608_7(8).0022

Authors

Jingtian Yang School of Insurance, Shandong University of Finance and Economics, Jinan, Shandong, 250000, China

DOI:

https://doi.org/10.6981/FEM.202608_7(8).0022

Keywords:

Digital Economy; CAPM; Systematic Risk; Model Applicability; Sub-industry Differences.

Abstract

This research employs 75 stocks from China A-share market from Shanghai and Shenzhen's digital economy stock markets as a typical example. Utilizing monthly figures spanning January 2015 to December 2024, the Capital Asset Pricing Model (CAPM) is applied in an unbalanced sampling approach to evaluate the systematic risk and relevance of the model in five distinct digital economy sectors. The results show that the average beta coefficients of all sub-industries are greater than 1, indicating that the digital economy sector as a whole has relatively high market sensitivity. Although there is some divergence in beta across sub-industries, the inter-group differences do not reach statistical significance. Simultaneously, discrepancies are noted in the sub-industries concerning and the proportion of significant alpha coefficients, indicating an inconsistency in the explanatory power of the CAPM among these sub-industries. Additional portfolio-level regressions based on beta sorting further show that beta coefficients increase monotonically from the low-beta portfolio to the high-beta portfolio, while all portfolio betas are significantly positive and no significant abnormal returns are observed. Generally, the risk attributes in the digital economy sector vary, implying that within China's capital market, the single-factor CAPM continues to have limitations in accounting for return changes in the digital economy sector.

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