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China-Concept Factor and Stock Returns in Taiwan

Author

Listed:
  • Chau-Chen Yang

    (Department of Finance, College of Management, National Taiwan University, 1 Roosevelt Road, Sec. 4, Taipei, Taiwan)

  • Cheng-Few Lee

    (Faculty of Management, Rutgers University, Piscataway, NJ 08854-8054, USA)

  • Yi-Jung Chen

    (Taiwan Securities Co., Ltd., 12F, No. 118, Sec. 4, Ren-ai Rd., Taipei, Taiwan)

  • Ling Hu

    (Department of Finance, College of Management, National Taiwan University, 1 Roosevelt Road, Sec. 4, Taipei, Taiwan)

Abstract

This study investigates whether there is a "China-concept factor", a common variation of stock returns, for firms that are listed in Taiwan stock markets and have real investments in China. We employ a methodology similar to that used by Lamontet al.(2001) in examining whether there is a financial-constraints factor. Listed firms in Taiwan stock markets for the period 1990–2004 are used to form portfolios of firms based on observable characteristics related to their real investments in China. We find that firms investing heavily in China have stock returns moving together over time, which suggests that firms investing in China are subject to common shocks. Firms investing heavily in China are found to exhibit higher average stock returns. There exists a China-concept factor for firms listed in Taiwan stock market and have real investments in China.

Suggested Citation

  • Chau-Chen Yang & Cheng-Few Lee & Yi-Jung Chen & Ling Hu, 2008. "China-Concept Factor and Stock Returns in Taiwan," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 99-122.
    • Handle: RePEc:wsi:rpbfmp:v:11:y:2008:i:01:n:s0219091508001283
    DOI: 10.1142/S0219091508001283
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    More about this item

    Keywords

    Stock returns; China-concept; factor models; common variation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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