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Misvaluation comovement, market efficiency and the cross-section of stock returns: Evidence from China
Luo,Yan1; Ren,Jinjuan2; Wang,Yizhi3
2015-09-01
Source PublicationEconomic Systems
ISSN09393625
Volume39Issue:3Pages:390-412
Abstract

In this study, we examine the relation between stock misvaluation and expected returns in China's A-share market. We measure individual stocks' misvaluation based on their pricing deviation from fundamental values, following Rhodes-Kropf et al. (2005. J. Finan. Econ. 77 (3), 561) and Chang et al. (2013. J. Bank. Finance, forthcoming), and find that the measure has strong and robust return predictive power in the Chinese market. We further form a misvaluation factor and find that misvaluation comovement and systematic misvaluation exist in the Chinese market. A comparison of our results with those of Chang et al. (2013. J. Bank. Finance, forthcoming) reveals that the misvaluation effect is much stronger in the Chinese market than in the U.S market. This evidence is consistent with the notion that the Chinese market is much less efficient than the U.S. market. Finally, we show that the return predictive power of misvaluation has weakened since China launched its split-share structure reform in 2005, which could result from the fact that the reform helps to promote market efficiency.

KeywordChinese Stock Market Comovement Market Efficiency Stock Misvaluation Stock Returns
DOI10.1016/j.ecosys.2015.01.001
URLView the original
Indexed BySSCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectEconomics
WOS IDWOS:000364246600003
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Cited Times [WOS]:4   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionDEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorLuo,Yan
Affiliation1.School of Management,Fudan University,,Shanghai,China
2.Faculty of Business Administration,University of Macau,,Taipa, Macau,Macao
3.College of Business and Economics,Australian National University,,Australia
Recommended Citation
GB/T 7714
Luo,Yan,Ren,Jinjuan,Wang,Yizhi. Misvaluation comovement, market efficiency and the cross-section of stock returns: Evidence from China[J]. Economic Systems,2015,39(3):390-412.
APA Luo,Yan,Ren,Jinjuan,&Wang,Yizhi.(2015).Misvaluation comovement, market efficiency and the cross-section of stock returns: Evidence from China.Economic Systems,39(3),390-412.
MLA Luo,Yan,et al."Misvaluation comovement, market efficiency and the cross-section of stock returns: Evidence from China".Economic Systems 39.3(2015):390-412.
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