Dissecting the effectiveness of firm financial strength in predicting Chinese stock market

Fuwei Jiang, Fujing Jin*, Guohao Tang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

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.

Original languageEnglish
Article number101332
Pages (from-to)1-6
Number of pages6
JournalFinance Research Letters
Volume32
DOIs
Publication statusPublished - Jan 2020

Keywords

  • Chinese stock market
  • F-score
  • Financial strength
  • Mispricing
  • Q theory of investment

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