TY - JOUR
T1 - Dissecting the effectiveness of firm financial strength in predicting Chinese stock market
AU - Jiang, Fuwei
AU - Jin, Fujing
AU - Tang, Guohao
PY - 2020/1
Y1 - 2020/1
N2 - This paper studies whether the financial strength measure, F-score, can predict returns in the Chinese stock market and its economic explanations. The results suggest that high F-score firms can generate high expected stock returns. Additionally, the predictability of F-score is robust after controlling for common factors in Fama–French models, and other firm characteristics and risks. We find that the premium generated by F-score in Chinese stock market is stronger following higher level of investor sentiment and for firms with higher limits to arbitrage and lower investment frictions, consistent with both the behavioral mispricing and the investment-q asset pricing theories.
AB - This paper studies whether the financial strength measure, F-score, can predict returns in the Chinese stock market and its economic explanations. The results suggest that high F-score firms can generate high expected stock returns. Additionally, the predictability of F-score is robust after controlling for common factors in Fama–French models, and other firm characteristics and risks. We find that the premium generated by F-score in Chinese stock market is stronger following higher level of investor sentiment and for firms with higher limits to arbitrage and lower investment frictions, consistent with both the behavioral mispricing and the investment-q asset pricing theories.
KW - Chinese stock market
KW - F-score
KW - Financial strength
KW - Mispricing
KW - Q theory of investment
UR - http://www.scopus.com/inward/record.url?scp=85075473736&partnerID=8YFLogxK
U2 - 10.1016/j.frl.2019.101332
DO - 10.1016/j.frl.2019.101332
M3 - Article
AN - SCOPUS:85075473736
SN - 1544-6123
VL - 32
SP - 1
EP - 6
JO - Finance Research Letters
JF - Finance Research Letters
M1 - 101332
ER -