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Value premium in the Chinese stock market: free lunch or paid lunch?

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  • Yujia Huang
  • Jiawen Yang
  • Yongji Zhang

Abstract

In this article we find that value premium exist throughout our sample period 1998--2008. However, the predictability of Book-to-Market (B/M) ratio appears to be unrelated with financial distress risk. In fact, value stocks are less risky than growth stocks in terms of return volatility and estimated financial distress risk. Further, our results suggest that the factor Value Minus Growth (VMG), which is directly related to value premium, is not a pervasive risk measure compared to the market factor and Small Minus Big (SMB) factor. While the size effect seems to be closely related to distress risk, both size and B/M factors do not appear to be driven by financial distress risk.

Suggested Citation

  • Yujia Huang & Jiawen Yang & Yongji Zhang, 2013. "Value premium in the Chinese stock market: free lunch or paid lunch?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(4), pages 315-324, February.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:4:p:315-324
    DOI: 10.1080/09603107.2012.720010
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    Cited by:

    1. Tanveer Ahmad; Syed Muhammad Amir Shah, 2017. "The Value-Growth Indicators and Value Premium: Evidence from Pakistan Stock Exchange," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 11(2), pages 124-139, Fall.
    2. Yin, Libo & Liao, Huiyi, 2020. "Firm’s quality increases and the cross-section of stock returns: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 228-243.
    3. Jansen, Maarten & Swinkels, Laurens & Zhou, Weili, 2021. "Anomalies in the China A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    4. Hanauer, Matthias X. & Jansen, Maarten & Swinkels, Laurens & Zhou, Weili, 2024. "Factor models for Chinese A-shares," International Review of Financial Analysis, Elsevier, vol. 91(C).
    5. Mohammad Sharik Essa & Evangelos Giouvris, 2023. "Fama–French–Carhart Factor-Based Premiums in the US REIT Market: A Risk Based Explanation, and the Impact of Financial Distress and Liquidity Crisis from 2001 to 2020," IJFS, MDPI, vol. 11(1), pages 1-39, January.

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