The Real Value of China's Stock Market

41 Pages Posted: 22 Jan 2018 Last revised: 1 Feb 2018

See all articles by Jennifer N. Carpenter

Jennifer N. Carpenter

New York University (NYU) - Department of Finance

Fangzhou Lu

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Robert Whitelaw

New York University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 19, 2018

Abstract

This paper shows that, counter to common perception, stock prices in China are strongly linked to firm fundamentals. Since the reforms of the early 2000s, stock prices are as informative about future profits as they are in the US. Although the market is segmented from international equity markets, Chinese investors price individual stock characteristics like other global investors: they pay up for size, growth, liquidity, and long shots, while they discount for systematic risk. Price informativeness is significantly correlated with corporate investment efficiency. For international investors, China's stock market offers high average returns and low correlation with other equity markets.

Keywords: capital allocation, price informativeness, market integration, global investing

JEL Classification: E44, F30, G12, G14, G15, O16, O53, P21, P34

Suggested Citation

Carpenter, Jennifer N. and Lu, Fangzhou and Whitelaw, Robert F., The Real Value of China's Stock Market (January 19, 2018). BOFIT Discussion Paper No. 2/2018. Available at SSRN: https://ssrn.com/abstract=3106656

Jennifer N. Carpenter (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0352 (Phone)
212-995-4233 (Fax)

Fangzhou Lu

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Robert F. Whitelaw

New York University ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0338 (Phone)
212-995-4233 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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