Shanghai And Shenzhen A-share Market Gains Vision Of Empirical Research

Return anomalies refer to the fact that some simple investment strategies based on certain firm-specific variables can achieve excess returns which can't be explained by the risk pricing theories. Ever since 1970s, all sorts of return anomalies have been discovered on the major stock markets around the world. This paper chooses 11 firm-specific variables to study whether related anomalies exist on China's stock markets.By conducting tests on all the non-financial and non-ST A-share stocks listed on Shanghai and Shenzhen Stock Exchange during the period between July 1999 to June 2010, this paper finds that anomalies related to size, price-to-book ratio, price-to-earnings ratio were significantly present throughout the market; the anomaly related to past revenue growth only existed in micro-cap and large-cap stocks; the anomaly related to total asset growth only appeared in micro-cap stocks; the anomaly related to turnover rate was well demonstrated in micro-cap, small-cap and mid-cap stocks; the anomaly of short-term return reversal showed varied magnitudes across different size groups and the momentum anomaly only applied to mid-cap stocks when the formation period was 6 month.This paper uses the three-factor model to derive the risk-adjusted portfolio returns and finds that it has good explanatory power for the anomalies related to size, price-to-book ratio, price-to-earnings ratio, past revenue growth, total asset growth and part of the return reversals. Then, this paper attempts to seek explanations from the angle of speculations for the anomalies related to turnover rate and the remaining return reversals which can't be accounted for by the three-factor model. This paper proposes that the low returns of past high turnover stocks may be due to the burst of price bubbles caused by speculations and the anomaly related to return reversals are likely to originate from the manipulation of big speculators.