The China-U.S. Equity Valuation Gap

The Chinese earnings yield differential relative to the U.S. switches from negative to positive around 2009, with the aggregate variation masking substantial cross-sector variation. Changes in sectoral composition and (changing) growth expectations are not important determinants of the variation in China-U.S. valuation differentials. Instead, changes in ownership structure, and most importantly cross-sectional and temporal variation in financial openness, are the key contributors. In addition, we show that IPOs in the banking sector and its internationalization played a critical role in the (relative) valuation change.

Keywords: Chinese stock prices, market integration, financial development, earnings yields, speculative trading, , growth expectations, emerging market discount

JEL Classification: F36, G15, G18

Suggested Citation: Suggested Citation

Bekaert, Geert and Ke, Shuojia and Wang, Xue and Zhang, Xiaoyan, The China-U.S. Equity Valuation Gap (January 5, 2021). Available at SSRN: https://ssrn.com/abstract=3760292 or http://dx.doi.org/10.2139/ssrn.3760292