Decomposing the Value Premium: The Role of Intangible Information in the Chinese Stock Market

Posted: 19 Jun 2017 Last revised: 3 Jun 2020

See all articles by Kin-Yip Ho

Kin-Yip Ho

The Australian National University - School of Finance, Actuarial Studies and Applied Statistics, College of Business and Economics

Jiyoun An

Kyung Hee University

Date Written: May 18, 2020

Abstract

Compared with other developed stock markets, the Chinese stock market has a unique informational and trading environment. Given this unique environment, we find that intangible information (which is orthogonal to past accounting information) and arbitrage risk are potential sources of the value premium. In particular, our single and multivariate decomposition analyses suggest that intangible information directly contributes at least 40% to the value premium over a one-year investment horizon. Further, idiosyncratic volatility, a proxy for arbitrage risk, also influences the value premium. However, its contribution becomes insignificant once we account for the impact of intangible information on idiosyncratic volatility. Overall, our findings indicate that intangible information, which is unrelated to the firm’s “fundamental” accounting-based performance measures, is the key driver of the value effects in the Chinese stock market.

Keywords: Chinese stock market; value premium; intangible information; arbitrage risk

JEL Classification: G12, G15, M41

Suggested Citation

Ho, Kin-Yip and An, Jiyoun, Decomposing the Value Premium: The Role of Intangible Information in the Chinese Stock Market (May 18, 2020). Emerging Markets Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2988241

Kin-Yip Ho

The Australian National University - School of Finance, Actuarial Studies and Applied Statistics, College of Business and Economics ( email )

Canberra, Australian Capital Territory 0200
Australia

Jiyoun An (Contact Author)

Kyung Hee University ( email )

1732 Deogyeong-daero
Giheung-gu
Yongin-si, Gyeonggi-do, Gyeonggi-Do 446-701
Korea, Republic of (South Korea)

HOME PAGE: http://kic.khu.ac.kr/

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