The Effect Of Market Friction On The Profitability Of China's Stock Market

Profitability measures the ability of listed companies to create profits for shareholders.Investors are willing to hold the shares of listed companies for two reasons.On the one hand,listed companies have strong profitability,and on the other hand,they have expectations.Listed companies can have greater profitability in the future and thus obtain higher profits.In the US stock market,companies with high profitability will be able to obtain higher profitability in the future,so as to better attract investors.However,whether the profitability of the Chinese A-share stock market has a significant ability to explain the expected rate of return has not been determined by domestic and foreign scholars.After using the empirical research on the profitability of A-share listed companies to determine the stock's expected yield,it is found that the company's profitability cannot explain its future stock returns.For this research result,this paper analyzes the conclusion from two aspects and draws an explanation: First,the sustainability of profitability;Second,market friction.The study in this paper concludes that unsustainable profitability and weaker profitability companies face stronger market frictions,which is the main reason for the loss of profitability in China's A-share market.This article takes the continuity of profitability and market friction as starting points to study the impact of China's stock market profitability on the expected yield,in order to expect the profitability of the A-share market from both the persistence of profitability and the market friction in the stock market.The explanation of the disappearance of the effect.In this paper,from 2005 to 2016,all companies listed on the Shanghai and Shenzhen stock exchanges as the research object,the main use of the Fama-MacBeth regression method for empirical research.The conclusions are as follows: First,China's A-share stock market does not have a significant profitability effect.That is to say,the profitability of listed companies has no significant ability to explain the future excess returns of stocks.Second,in the Chinese A-share stock market,the profitability of listed companies is not sustainable.The company's profitability cannot be used to predict earnings growth in the next year,but it is negatively correlated with earnings growth in the next three years.This indicates that the loss of profitability is partly due to the lack of sustainability of profitability.Third,the time lag in stock prices has a significant ability to explain the stock's expected return.Companies with strong profitability have low time lags in their stock prices,which means that companies with strong profitability tend to have better liquidity and attract investors' attention.Since investors holding stocks with higher market frictions need certain risk compensation,and profitability is significantly negatively correlated with expected stock returns as explained by market frictions,empirical results show that stocks with high market frictions are required.The premium,which is the positive correlation between market friction and yield,masks the potential profitability of the company's stock.