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Decomposition of book-to-market and the cross-section of returns for Chinese shares

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  • Cakici, Nusret
  • Chatterjee, Sris
  • Topyan, Kudret

Abstract

In this paper, we show that the book-to-market decomposition described in Fama–French (2008) significantly improves the predictive power of the estimation for an important emerging market, viz, Chinese shares. Second, we show that this improvement comes mainly from the change in book equity and not from the change in price. The predictive power of the change in book equity is most pronounced for large stocks, for stocks listed on Shenzhen Exchange, for stocks with low book-to-market (or growth stocks), and for Class B shares. Net Share Issue and Momentum add no explanatory power to the predictive regressions.

Suggested Citation

  • Cakici, Nusret & Chatterjee, Sris & Topyan, Kudret, 2015. "Decomposition of book-to-market and the cross-section of returns for Chinese shares," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 102-120.
    • Handle: RePEc:eee:pacfin:v:34:y:2015:i:c:p:102-120
    DOI: 10.1016/j.pacfin.2015.05.004
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    References listed on IDEAS

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    Cited by:

    1. Douglas W. Blackburn & Nusret Cakici, 2019. "Book-To-Market Decomposition, Net Share Issuance, and the Cross Section of Global Stock Returns," JRFM, MDPI, vol. 12(2), pages 1-29, May.
    2. Chen, Jiun-Lin & Glabadanidis, Paskalis & Sun, Mingwei, 2022. "The five-factor asset pricing model, short-term reversal, and ownership structure – the case of China," International Review of Financial Analysis, Elsevier, vol. 82(C).
    3. Zaremba, Adam & Umutlu, Mehmet, 2018. "Size matters everywhere: Decomposing the small country and small industry premia," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 1-18.
    4. Guo, Bin & Zhang, Wei & Zhang, Yongjie & Zhang, Han, 2017. "The five-factor asset pricing model tests for the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 84-106.

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    More about this item

    Keywords

    Chinese stocks; Book-to-market decomposition; Emerging markets; Fama–French; Predictive regression;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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