Value Premium in the Chinese Stock Market: Free Lunch or Paid Lunch?

31 Pages Posted: 15 Aug 2011

See all articles by Yujia Huang

Yujia Huang

Renmin University of China

Jiawen Yang

George Washington University - School of Business

Date Written: January 1, 2010

Abstract

In this paper we examine the time-series predictability of the book-to-market (B/M) ratio for annual and monthly portfolio returns in the Chinese stock market. We find that value premiums exist throughout our sample period of 1998 to 2008. However, the predictability of B/M appears to be unrelated with financial distress risk. In fact, value stocks are less risky than growth stocks in terms of return volatility and estimated financial distress risk. Further, our results suggest that the factor VMG, which is directly related to value premium, is not a pervasive risk measure compared to market factor and SMB. While the size effect seems to be closely related to distress risk, both size and B/M factors not appear to be driven by financial distress risk.

Keywords: International asset pricing, value premium, financial distress risk

JEL Classification: G12, G15,

Suggested Citation

Huang, Yujia and Yang, Jiawen, Value Premium in the Chinese Stock Market: Free Lunch or Paid Lunch? (January 1, 2010). Available at SSRN: https://ssrn.com/abstract=1909253 or http://dx.doi.org/10.2139/ssrn.1909253

Yujia Huang

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Jiawen Yang (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States
202-994-8709 (Phone)
202-994-7422 (Fax)

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