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The Value Effect and the Market For Chinese Stocks

Author

Listed:
  • Burton G. Malkiel

    (Princeton University)

  • Derek Jun

    (Old Square Capital Advisors)

Abstract

A long literature in empirical finance has isolated both a value and a small-capitalization effect in asset pricing. This study confirms the existence of these style effects both in new types of equity indexes and in the stocks of Chinese companies traded in international markets. We then present a new nonparametric method of portfolio construction that enables investors to extract the predictive power of these style effects, without diluting their efficacy through an unintended weighting distribution that closely resembles capitalization weighting. We then develop a simple method to isolate periods where style tilts are likely to be particularly effective.

Suggested Citation

  • Burton G. Malkiel & Derek Jun, 2009. "The Value Effect and the Market For Chinese Stocks," Working Papers 1177, Princeton University, Department of Economics, Center for Economic Policy Studies..
    • Handle: RePEc:pri:cepsud:188
    as

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    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Basu, Sanjoy, 1983. "The relationship between earnings' yield, market value and return for NYSE common stocks : Further evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 129-156, June.
    3. Herbert Y. T. Lam & Spyros I. Spyrou, 2003. "Fundamental variables and the cross-section of expected stock returns: the case of Hong Kong," Applied Economics Letters, Taylor & Francis Journals, vol. 10(5), pages 307-310, April.
    4. Derek Jun & Burton G. Malkiel, 2008. "New Paradigms in Stock Market Indexing," Working Papers 1050, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Derek Jun & Burton G. Malkiel, 2008. "New Paradigms in Stock Market Indexing," European Financial Management, European Financial Management Association, vol. 14(1), pages 118-126, January.
    6. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    7. Brown, Stephen & Yan Du, Daphne & Rhee, S. Ghon & Zhang, Liang, 2008. "The returns to value and momentum in Asian Markets," Emerging Markets Review, Elsevier, vol. 9(2), pages 79-88, June.
    8. Naughton, Tony & Truong, Cameron & Veeraraghavan, Madhu, 2008. "Momentum strategies and stock returns: Chinese evidence," Pacific-Basin Finance Journal, Elsevier, vol. 16(4), pages 476-492, September.
    9. repec:pri:indrel:166malkiel.pdf is not listed on IDEAS
    10. Derek Jun & Burton G. Malkiel, 2008. "New Paradigms in Stock Market Indexing," Working Papers 1050, Princeton University, Department of Economics, Center for Economic Policy Studies..
    11. repec:pri:indrel:166malkiel is not listed on IDEAS
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    More about this item

    Keywords

    China; stock market; capitalization; stock portolios; equity index;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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