TY - JOUR
T1 - Firm size, book-to-market equity and security returns
T2 - evidence from the Shanghai Stock Exchange
AU - Drew, Michael E.
AU - Naughton, Tony
AU - Veeraraghavan, Madhu
PY - 2003
Y1 - 2003
N2 - Capital market theory is concerned with the equilibrium relationship between risk and expected return on risky assets. Within this framework, this paper seeks to extend the mounting evidence against the view that the beta coefficient of the Capital Asset Pricing Model is the sole measure of risk. In this paper we test the multifactor approach to asset pricing in one of the most challenging international markets, the Shanghai Stock Exchange, China. Firstly, we seek to determine whether the size and value premia exists in China. Secondly, we address the challenge that size and value premia are largely determined by seasonal factors (such as the January and/or Chinese New Year effect). Our findings suggest that mean-variance efficient investors in China can select some combination of small and low book-to-market equity firms in addition to the market portfolio to generate superior risk-adjusted returns. Moreover, we find no evidence to support the view that seasonal effects explain the findings of the multifactor model. In summary, we find the market factor alone is not sufficient to describe the cross-section of average stock returns in China.
AB - Capital market theory is concerned with the equilibrium relationship between risk and expected return on risky assets. Within this framework, this paper seeks to extend the mounting evidence against the view that the beta coefficient of the Capital Asset Pricing Model is the sole measure of risk. In this paper we test the multifactor approach to asset pricing in one of the most challenging international markets, the Shanghai Stock Exchange, China. Firstly, we seek to determine whether the size and value premia exists in China. Secondly, we address the challenge that size and value premia are largely determined by seasonal factors (such as the January and/or Chinese New Year effect). Our findings suggest that mean-variance efficient investors in China can select some combination of small and low book-to-market equity firms in addition to the market portfolio to generate superior risk-adjusted returns. Moreover, we find no evidence to support the view that seasonal effects explain the findings of the multifactor model. In summary, we find the market factor alone is not sufficient to describe the cross-section of average stock returns in China.
KW - ASSET PRICING
KW - CHINA
KW - MULTIFACTOR MODEL
KW - SEASONAL EFFECTS
KW - SHANGHAI STOCK EXCHANGE
UR - http://www.scopus.com/inward/record.url?scp=84996217226&partnerID=8YFLogxK
U2 - 10.1177/031289620302800201
DO - 10.1177/031289620302800201
M3 - Article
SN - 0312-8962
VL - 28
SP - 119
EP - 139
JO - Australian Journal of Management
JF - Australian Journal of Management
IS - 2
ER -