Firm Characteristics and Chinese Stocks

41 Pages Posted: 19 Jul 2018

See all articles by Fuwei Jiang

Fuwei Jiang

Central University of Finance and Economics (CUFE)

Guohao Tang

Hunan University - College of Finance and Statistics

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School; China Academy of Financial Research (CAFR)

Date Written: May 30, 2018

Abstract

This paper conducts a comprehensive study on predicting the cross section of Chinese stock market returns with a large panel of 75 individual firm characteristics. We use not only the traditional Fama-MacBeth regression, but also “big-data” econometric methods: principal component analysis (PCA), the partial least squares (PLS) and forecast combination to extract information from all of the 75 firm characteristics. We find the firm characteristics are important predictors, significant both statistically and economically. In addition, the recent developed PLS performs the best. Our empirical results further indicate that those firm characteristics that are related to trading frictions, momentum, and profitability are the most effective predictors for future stock returns in the Chinese stock market.

Keywords: Partial Least Square, Firm Characteristics, Systematic Factor, Chinese Stock Market

JEL Classification: G12, G14

Suggested Citation

Jiang, Fuwei and Tang, Guohao and Zhou, Guofu, Firm Characteristics and Chinese Stocks (May 30, 2018). Available at SSRN: https://ssrn.com/abstract=3204753 or http://dx.doi.org/10.2139/ssrn.3204753

Fuwei Jiang

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Guohao Tang (Contact Author)

Hunan University - College of Finance and Statistics ( email )

Lushan Road (S), Yuelu District
Changsha, Hunan 410006
China

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

China Academy of Financial Research (CAFR)

Shanghai Advanced Institute of Finance
Shanghai P.R.China, 200030
China

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