On the Predictability of Chinese Stock Returns

Download or read book On the Predictability of Chinese Stock Returns written by Xuanjuan Chen and published by . This book was released on 2010 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 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.