Firm size, book-to-market equity and security returns: evidence from the Shanghai stock exchange

Drew, M, Naughton, T and Veeraraghavan, M 2003, 'Firm size, book-to-market equity and security returns: evidence from the Shanghai stock exchange', Australian Journal of Management, vol. 28, no. 2, pp. 119-139.


Document type: Journal Article
Collection: Journal Articles

Title Firm size, book-to-market equity and security returns: evidence from the Shanghai stock exchange
Author(s) Drew, M
Naughton, T
Veeraraghavan, M
Year 2003
Journal name Australian Journal of Management
Volume number 28
Issue number 2
Start page 119
End page 139
Total pages 20
Publisher Australian Graduate School of Management
Abstract 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.
Subject Business and Management not elsewhere classified
ISSN 0312-8962
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