Publication Type
Master Thesis
Version
publishedVersion
Publication Date
2010
Abstract
We analyze return predictability for the Chinese stock market, including the aggregate market portfolio and the components of the aggregate market, such as portfolios sorted on industry, size, book-to-market and ownership concentration. Considering a variety of economic variables as predictors, both in-sample and out-of-sample tests highlight significant predictability in the aggregate market portfolio of the Chinese stock market and substantial differences in return predictability across components. Among industry portfolios, Finance and insurance, Real estate, and Service exhibit the most predictability, while portfolios of small-cap and low ownership concentration firms also display considerable predictability. Two key findings provide economic explanations for component predictability: (i) based on a novel out-of-sample decomposition, time-varying macroeconomic risk premiums captured by the conditional CAPM model largely account for component predictability; (ii) industry concentration and market capitalization significantly explain differences in return predictability across industries, consistent with the information-flow frictions emphasized by Hong, Torous, and Valkanov (2007).
Keywords
return predictability, industries, size, book-to-market, rational asset pricing, information-flow frictions
Degree Awarded
MSc in Finance
Discipline
Asian Studies | Portfolio and Security Analysis
Supervisor(s)
TU, Jun
Publisher
Singapore Management University
City or Country
Singapore
Citation
JIANG, Fuwei.
How Predictable is the Chinese Stock Market?. (2010).
Available at: https://ink.library.smu.edu.sg/etd_coll/57
Copyright Owner and License
Author
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.