China 's Stock Market Style Investment, Linkage And Yield Forecast

Previous researches have shown that there exist many anomalies in the stock market. With the support of these studies about the no-efficient market and market anomalies, style investing becomes prevalent all over the world. For institutional investors, style investing is a good way to allocate assets and to manage risks. With the increase of the quantity of institutional investors and the improvement of quality of investors, more and more investors accept and think highly of style investing. Overseas studies shows that past style returns help explain future stock return after controlling some stock characters. This paper attempts to test whether this conclusion is tenable in the Chinese A-share market.Considering the practical situation on the Chinese A-share market, we demarcate the style of a stock according to its industry property and we do the empirical study based on this demarcation. The empirical study shows that style investing can generate predictability in returns. We also do robustness tests by selecting study samples and study intervals. The results of robustness tests show that the predictive ability of style investing is not significant in the subinterval from2001to2005but is significant in the subinterval from2006to2012. Moreover, we study the effect of the comovement between style return and stock return on the return predictability. The study shows that the predictive ability increases when the comovement increases.