Asset Pricing in China: Evidence from the Shanghai Stock Exchange

Drew, Michael E., Naughton, Tony, & Veeraraghavan, Madhu (2003) Asset Pricing in China: Evidence from the Shanghai Stock Exchange. [Working Paper]


Capital market theory is concerned with the equilibrium relationship between risk and expected return on financial claims. 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 size and value premia exist 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 suggest the market factor alone is not sufficient to describe the cross-section of average stock returns in China.

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ID Code: 8210
Item Type: Working Paper
Refereed: No
Keywords: asset pricing, China
ISSN: 1324-5910
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Financial Economics (140207)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2003 (Please consult authors)
Deposited On: 15 Jun 2007 00:00
Last Modified: 10 Aug 2011 18:03

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