| Chinese stock market has been developing rapidly in recent years and it is playing a more and more active role in Chinese economic growth.This paper focuses on examining the stock return predictability of A-shares in Chinese stock market and comparing the result with the US stock market.We take 15 firm-specific variables that have been documented to predict cross-sectional stock returns in the U.S.Our goal is to examine whether these variables can be used to predict cross-sectional stock returns in Chinese stock market and compare the result with the ones in the U.S.stock market for a sample period from 1996 to 2015.Through assets combination analysis and regression analysis on cross-section,we find that the return predictability of Chinese stock market is less informative.When performing the same examination on Chinese A-shares stock market and U.S.stock market,the result shows that only 5 firm-specific variables can significantly predict the stock returns,while 11 predictors can significantly explain the variation of cross-sectional stock returns in U.S stock market.Therefore,there do exist return predictability in Chinese stock market,but it is much weaker than that in the U.S.stock market.Although return predictability is usually viewed as the symbol of a market's inefficiency,it is unlikely that the weak predictability of Chinese A-shares stock market is due to high market efficiency.We offer two possible explanations for the weak predictability of Chinese stock market and examine them individually.One possibility is that return predictors in Chinese stock market is more homogeneous than that in the U.S.market.The other possibility is that stock price is more inefficient and contains more noise in Chinese market.Our research shows that the return predictors are more homogeneous that that in the U.S.market.But it is not the whole reason why the predictability of Chinese stock market is weak,it is also related to the lower informative of Chinese stock price. |
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