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On the predictability of Chinese stock returns

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  • Chen, Xuanjuan
  • Kim, Kenneth A.
  • Yao, Tong
  • Yu, Tong

Abstract

We examine stock return predictability in China. We take 18 firm-specific variables that have been documented to predict cross-sectional stock returns in the U.S. and examine their relation with stock returns in China for the sample period from 1995 to 2007. We find relatively weak predictability for Chinese stocks. Only five firm-specific variables predict returns in the Chinese market. Tests on U.S. stock returns find that more predictors can explain cross-sectional stock return variation. We test two explanations for the cause of weak returns predictability in China. First, perhaps return predictors in China are less heterogeneously distributed than they are in the U.S. Second, stock prices are less informative in China than they are in the U.S. We find support for both explanations.

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Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 18 (2010)
Issue (Month): 4 (September)
Pages: 403-425

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Handle: RePEc:eee:pacfin:v:18:y:2010:i:4:p:403-425

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Web page: http://www.elsevier.com/locate/pacfin

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Keywords: Stock return predictability Cross-section of stock returns China;

References

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Cited by:
  1. Goh, Jeremy C. & Jiang, Fuwei & Tu, Jun & Wang, Yuchen, 2013. "Can US economic variables predict the Chinese stock market?," Pacific-Basin Finance Journal, Elsevier, vol. 22(C), pages 69-87.
  2. Gao, Fox & Faff, Robert & Navissi, Farshid, 2012. "Corporate philanthropy: Insights from the 2008 Wenchuan Earthquake in China," Pacific-Basin Finance Journal, Elsevier, vol. 20(3), pages 363-377.
  3. Jordan, Steven J. & Vivian, Andrew & Wohar, Mark E., 2014. "Sticky prices or economically-linked economies: The case of forecasting the Chinese stock market," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 95-109.

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