How Predictable Is the Chinese Stock Market?

David E. Rapach Jack K. Strauss How Predictable Is the Chinese Stock Market? Jiang Fuwei a, David E. Rapach b, Jack K. Strauss b, Tu Jun a, and Zhou Guofu c (a: Lee Kong Chian School of Business, Singapore Management University; b: Department of Economics, Saint Louis University; c: Olin School of Business, Washington University, St. Louis; and CAFR) David E. Rapach Jack K. Strauss 63130 zhou@wustl.edu 314-935-6384 The Chinese Finance Association TCFA Jerry Cao, Jeremy Goh, Jun Wang Chenyang Jason Wei Joe Zhang Zhe, 2010 CICF 2010 16 TCFA Annual Conference SMU

2 Hong, Torous, and Valkanov 2007 1 How Predictable Is the Chinese Stock Market? Abstract: We analyze return predictability for the Chinese stock market, including the aggregate market portfolio and the components of the aggregate market, such as portfolios sorted on industry, size, book-to-market and ownership concentration. Considering a variety of economic variables as predictors, both in-sample and out-of-sample tests highlight significant predictability in the aggregate market portfolio of the Chinese stock market and substantial differences in return predictability across components. Among industry portfolios, Finance and insurance, Real estate, and Service exhibit the most predictability, while portfolios of small-cap, low book-to-market ratio and low ownership concentration firms also display considerable predictability. Two key findings provide economic explanations for component predictability: (i) based on a novel out-of-sample decomposition, time-varying systematic risk premiums captured by the conditional model largely account for component predictability; (ii) industry concentration significantly explain differences in return predictability across industries, consistent with the information-flow frictions emphasized by Hong, Torous, and Valkanov (2007). Keywords: Component Portfolios; In-Sample Return Predictability; Out-of-Sample Return Predictability; Conditional ; Information-Flow Frictions JEL classifications: C22, C53, G11, G12, G17

Cochrane, 2011 Cochrane Campbell, 2000 Welch and Goyal 2008 Bossaerts and Hillion 1999 Campbell and Thompson 2008 Spiegel 2008 Ferson and Harvey 1999 Fama and French 1997 13 10 10 10 12 Welch and Goyal 2008 Ludvigson and Ng 2007, 2009 Rapach, Strauss, Tu and Zhou 2011 Hong, Torous, and Valkanov 2007 Campbell 2000 Welch and Goyal 2008 2002 Wang and Cheng 2004 2006 Chen, Kim, Yang, and Yu 2010

2002 1 2009 6 13 2007 2009 2002 2006 Hong, Torous, and Valkanov 2007 Hong, Torous, and Valkanov 2007 i 13 10 10 10 1 OLS t (1) 1 1 Small Sample Bias Stambaugh, 1986, 1999 bootstrap Nelson and Kim 1993 Inoue and Kilian, 2004 bootstrap Size Distortion

13 10 10 10 PT ST A A 1996 7 2009 6 6 13 AGR MNS MAN UTL CNT TRS INF WRS FIN PRT SVC MED MUT t 7 t+1 6 t 6 A 6 6 10 S1,,S10 t 7 t+1 6 t 6 A 6 6 10 BM1,,BM10 t 6 t 6 t 6 t-1 t 6 t 7 t+1 6 t-1 t 6 A 6 6 10 OC1,,OC10 t-1 t 6 t 7 t+1 6 t-1 A 12 D/E A 12 D/P A D/Y A E/P A B/M A 1 3 6 4 9 12 10 12 6 SVR A INF CPI 1 Welch and Goyal, 2008 NTIS 12 TO A CEIC M0 M0G M0, M0 M1 M1G M1 M1 M1 M1 M0 M2 M2G M2 M2 M1 M0 M1 M2 Welch and Goyal 2008 14

1 MKT 1.26 9.01 0.14 A B AGR 1.29 10.90 0.12 TRS 1.35 9.50 0.14 SVC 1.32 10.02 0.13 MNS 2.33 10.87 0.21 INF 1.49 11.52 0.13 MED 1.25 12.11 0.10 MAN 1.22 9.57 0.13 WRS 1.38 9.97 0.14 MUT 1.31 10.89 0.12 UTL 1.12 9.25 0.12 FIN 1.58 10.59 0.15 CNT 0.65 10.07 0.06 PRT 1.39 10.31 0.13 C S1 2.62 11.83 0.22 S5 1.57 10.62 0.15 S9 1.36 9.67 0.14 S2 2.02 11.25 0.18 S6 1.47 10.43 0.14 S10 0.99 8.78 0.11 S3 2.00 11.10 0.18 S7 1.34 10.17 0.13 S4 1.84 10.68 0.17 S8 1.29 9.95 0.13 D BM1 0.60 9.83 0.06 BM5 1.40 9.79 0.14 BM9 1.64 9.68 0.17 BM2 1.21 9.27 0.13 BM6 1.24 9.28 0.13 BM10 1.70 10.31 0.16 BM3 1.04 9.22 0.11 BM7 1.43 10.06 0.14 BM4 0.99 8.87 0.11 BM8 1.61 10.32 0.16 E OC1 1.33 9.41 0.14 OC5 1.33 9.58 0.14 OC9 1.11 9.42 0.12 OC2 1.25 10.67 0.12 OC6 1.09 9.10 0.12 OC10 1.46 8.74 0.17 OC3 1.47 10.57 0.14 OC7 1.34 9.60 0.14 OC4 1.41 9.98 0.14 OC8 1.12 9.33 0.12 F D/P -4.64 0.54 SVR 0.01 0.01 INF 0.001 0.01 D/Y -4.63 0.54 E/P -3.60 0.44 NTIS 0.04 0.01 D/E -1.04 0.29 B/M 0.34 0.13 TO 0.12 0.08 M0G 0.12 0.05 M1G 0.003 0.02 M2G 0.17 0.03 1996 7 2009 6 A A B 13 C D; E 10 F 12 1 1996 7 2009 6 12 1 B 0.65% CNT 2.33% MNS 9.25% UTL 12.11% MED C D 2 MKT 1 12 1996 7 2009 6 / 1 t 2 Campbell and Thompson 2008 0.5% Xu 2004 D/Y INF TO M1G M2G 5 5%

2 2 D/P D/Y D/E SVR E/P B/M INF NTIS TO M0G M1G M2G MKT 2.02 2.28 * 1.25 0.80 1.64 1.38 1.70 * 1.28 2.98 * 1.61 1.72 * 2.58 * 2.58 3.28 1.01 0.41 1.72 1.23 1.85 1.06 5.46 1.65 1.88 4.13 2.19 AGR 1.17 1.27 0.20 2.02 * 1.31 0.59 1.09 1.40 3.08 * 1.30 1.07 2.16 * 0.88 1.04 0.03 2.59 1.10 0.23 0.76 1.26 5.80 1.09 0.74 2.93 1.54 MNS 0.85 1.09 0.45 0.22 0.74 0.90 1.68 * 1.54 1.95 * 1.09 1.36 1.99 * 0.46 0.76 0.13 0.03 0.36 0.52 1.80 1.52 2.40 0.77 1.18 2.50 1.04 MAN 2.18 2.38 * 1.16 0.95 1.90 1.61 1.31 1.32 2.73 * 1.52 1.71 * 2.28 * 2.98 3.55 0.86 0.58 2.28 1.65 1.10 1.12 4.61 1.47 * 1.87 3.26 2.11 UTL 1.33 1.44 1.07 1.31 0.92 0.73 1.77 * 1.18 2.55 * 1.68 * 1.35 1.71 * 1.13 1.33 0.74 1.10 0.54 0.34 1.99 0.90 4.04 1.81 1.18 1.86 1.41 CNT 1.85 1.84 * 1.17 1.36 1.49 1.39 1.73 * 2.28 * 1.41 1.54 1.08 0.45 2.18 2.16 0.89 1.19 1.43 1.23 1.90 3.26 1.27 1.51 0.76 0.13 1.49 TRS 1.21 1.53 0.99 0.99 0.83 0.55 2.46 * 0.71 3.29 * 1.09 1.21 2.47 * 0.94 1.50 0.63 0.64 0.44 0.19 3.79 0.32 6.56 0.76 0.95 3.83 1.71 INF 1.18 1.40 0.07 1.42 1.41 1.00 0.95 0.86 2.32 * 0.73 1.24 2.48 * 0.90 1.26 0.00 1.29 1.28 0.64 0.59 0.47 3.39 0.34 0.99 3.83 1.25 WRS 1.93 2.14 * 0.66 1.04 1.94 1.54 0.85 1.60 2.65 * 1.54 1.50 1.87 * 2.37 2.88 0.28 0.70 2.38 1.52 0.47 1.64 4.37 1.52 1.43 2.22 1.82 FIN 2.62 * 2.76 * 1.99 * 0.59 1.88 1.89 1.81 * 1.08 2.52 * 0.78 0.83 2.48 * 4.27 4.70 2.50 0.22 2.24 2.28 2.08 0.76 3.96 0.39 0.45 3.84 2.31 PRT 2.70 * 3.03 * 1.31 1.08 2.42 * 1.96 1.51 1.20 3.69 * 1.12 2.00 * 2.54 * 4.50 5.62 1.11 0.75 3.67 2.42 1.45 0.93 8.14 0.80 2.53 4.01 3.00 SVC 2.08 2.37 * 0.62 1.11 2.14 1.76 1.19 1.40 2.75 * 1.50 1.32 1.59 2.73 3.51 0.25 0.79 2.90 1.97 0.91 1.25 4.68 1.43 1.13 1.61 1.93 MED 1.67 1.69 0.42 0.95 1.78 1.56-0.32 1.50 1.51 1.22 1.32 1.33 1.77 1.81 0.11 0.59 2.01 1.56 0.07 1.44 1.46 0.96 1.12 1.14 1.17 MUT 2.00 2.15 * 0.53 1.29 2.11 1.61 1.26 1.09 2.58 * 1.43 1.67 * 2.24 * 2.53 2.90 0.18 1.07 2.82 1.65 1.01 0.77 4.15 1.32 1.78 3.17 1.95 # Sig 2 7 1 1 1 0 5 1 11 2 3 10 2.13 2.54 0.59 0.89 1.80 1.25 1.38 1.20 4.22 1.09 1.24 2.64 t- MKT A 1996 7 2009 6 * 5% # Sig 5% MKT 2 2 1 12 2 2 5% D/Y INF TO M2G 13 7 5 11 10 2 MAN FIN PRT 2% MNS INF MED 1% 10

4 D/Y TO M2G 3 6 10 10 INF 1 SVR M1G 5 7 D/Y TO M1G M2G 4 4 9 10 5 10 10 D/Y TO M1G M2G 10 D/Y TO M1G M2G 4 9 10 6 10 Welch and Goyal 2008 Ludvigson and Ng 2007, 2009 Rapach Strauss, Tu and Zhou 2011 Expanding Estimation Thompson 2008 Welch and Goyal 2008 T n 1 n 2 : OLS : 1 Campbell and (2) (3) n 2 Welch and Goyal 2008 Kitchen Sink Welch and Goyal, 2008

J Rapach Strauss, Tu and Zhou 2011 (4) OLS n 2 Campbell and Thompson, 2008; Welch and Goyal, 2008 Campbell and Thompson 2008 MSPE (5) Clark and West 2007 MSPE-adjusted Diebold and Mariano 1995 West 1996 Nested Diebold and Mariano 1995 West 1996 Non-Nested Clark and McCracken 2001 McCracken 2007 Diebold and Mariano 1995 West 1996 Clark and West 2007 Diebold and Mariano 1995 West 1996 Clark and West 2007 MSPE-adjusted 1996 7 2001 12 2002 1 2009 6 2002 2006 2007 2009 3 MKT 12 TO M0G M1G M2G 4 PCF 5% 9.30% 7 A 2007 2009 2002 2006 3 TO M0G M1G M2G 4 3 4 5 6 TO

Miller 1977 Miller 1977 M0G M1G M2G Bernanke and Gertler 1995 2002 3 TO M0G M1G M2G 4 TO PRT TRS 9.44% 8.95% PCF MAN TRS WRS FIN PRT SVC MUT 7 6.00% PRT 11.37% MNS 3.67% MED 2.84% 7 B 2007 2009 2002 2006 2.5 D/P D/Y D/E SVR E/P B/M INF NTIS TO M0G M1G M2G PCF MKT 0.30 0.98 1.84-2.01-4.78-7.13 0.76 1.23 7.79 * 2.05 * 2.61 * 2.97 * 9.30 * AGR -2.04-1.88 0.45-1.22-6.48-7.54 0.43-0.23 4.90 1.40 * 0.62-0.82 4.00 * MNS -1.07-0.97-2.99-1.88-4.34-7.60 0.77 2.08 3.48 * 1.01 1.85 * 3.26 * 3.67 * MAN 1.34 2.08 1.69-1.05-2.78-4.48 0.04 1.41 6.11 * 1.76 * 2.41 * 1.96 * 8.16 * UTL -1.19-1.37 0.77-1.07-3.84-4.89 1.01 0.29 4.91 * 1.96 * 1.46 * 0.66 4.41 * CNT 2.88 * 3.04 * 1.53 * 0.74 0.60-0.04-0.55 5.49 * -0.49 2.08 * 1.29 * -1.87 4.17 * TRS -3.44-3.71 0.45-3.46-8.68-10.9 1.40-1.07 8.95 * 0.85 1.26 * 1.03 6.16 * INF -5.30-6.14 0.77-2.02-13.3-19.3-2.22-1.20 6.99 * 0.36 2.14 * 1.01 4.70 * WRS 1.35 2.07 0.17-0.81-2.06-3.96-0.33 2.64 5.63 * 1.73 * 1.74 * 1.56 * 7.57 * FIN 1.39 2.87 * 2.37-4.52-2.50-4.38 1.99-2.65 5.69 * 0.62 0.58 * 2.59 6.84 * PRT 3.00 * 3.74 * 1.34-1.19 0.06-1.77-1.27 0.56 9.44 * 0.94 2.88 * 2.69 * 11.37 * SVC 3.17 * 3.55 * -0.09-1.69-0.04-2.24-1.09 2.38 6.11 * 1.44 1.32 * 1.25 8.53 * MED -0.01 0.37 0.08-0.22-4.33-8.75-0.15 2.41 * 0.98 0.55 1.34 * 0.73 2.84 * MUT 0.14 0.26 0.38-0.72-4.62-8.46-0.65 0.42 5.74 * 1.47 2.43 * 1.38 * 8.09 * #Sig 3 4 1 0 0 0 0 2 10 5 12 5 13 0.02 0.30 0.53-1.47-4.03-6.50-0.05 0.96 5.26 1.24 1.64 1.19 6.19 Campbell and Thompson 2008 MKT A PCF 12 * Clark and West 2007 MSPE-adjusted 5% # Sig 5% MKT 2008 Baker and Stein 2004 2002 Wang and Cheng 2004 2006

4 TO M0G M1G M2G 4 PCF TO 7.79% 9.19% 7 C 2002 2006 S1 8.55% 2007 2009 2002 2006 2 D/P D/Y D/E SVR E/P B/M INF NTIS TO M0G M1G M2G PCF MKT 0.30 0.98 1.84-2.01-4.78-7.13 0.76 1.23 7.79 * 2.05 * 2.61 * 2.97 * 9.30 * S1-3.03-2.05 1.17 1.66-6.79-10.2-2.03 1.66 9.71 * 1.88 1.64 * 1.37 9.15 * S2 0.27 0.31-0.26 0.99-4.13-7.21-1.16 1.71 6.50 * 1.81 2.61 * 1.68 * 8.41 * S3-0.98-0.84 0.23 0.53-4.62-6.67-1.78 1.99 8.65 * 1.28 1.39 * 1.49 * 8.67 * S4-0.38-0.19 0.04 0.15-3.60-5.76-1.06 1.53 8.01 * 1.19 2.08 * 1.72 * 8.39 * S5-0.50-0.64 0.19-0.01-4.00-6.24-0.78 0.63 6.94 * 0.81 2.27 * 1.72 * 7.79 * S6-0.30-0.15 0.26-0.06-4.12-6.83-0.78 2.06 7.79 * 1.53 * 2.38 * 1.48 * 9.19 * S7 0.27 0.68 0.80-1.11-3.91-6.14-0.37 0.60 7.17 * 1.24 2.63 * 1.51 * 8.33 * S8 1.35 1.83 1.12-0.94-2.49-4.29-0.19 1.21 6.19 * 0.89 1.81 * 1.55 * 7.92 * S9 0.55 1.20 1.39-1.17-3.94-6.81 0.29 0.30 7.96 * 1.32 * 2.29 * 1.92 * 8.70 * S10 2.05 3.33 * 3.94 * -1.69-3.45-5.22 2.02 * -0.91 5.05 * 2.02 * 2.59 * 3.62 * 8.38 * #Sig 0 1 1 0 0 0 1 0 10 3 10 9 10-0.07 0.35 0.89-0.16-4.10-6.54-0.58 1.08 7.40 1.40 2.17 1.81 8.49 Campbell and Thompson 2008 S1,,S10 10 MKT A PCF 12 * Clark and West 2007 MSPE-adjusted 5% # Sig 5% MKT D/P D/Y D/E SVR E/P B/M INF NTIS TO M0G M1G M2G PCF MKT 0.30 0.98 1.84-2.01-4.78-7.13 0.76 1.23 7.79 * 2.05 * 2.61 * 2.97 * 9.30 * BM1 1.38 2.38 1.59 * -1.17-3.16-5.67 0.39 1.68 7.26 * 2.11 * 1.86 * 1.32 8.36 * BM2 1.29 2.05 0.42-1.80-3.39-6.27-0.36 0.30 7.91 * 1.29 * 1.72 * 1.63 * 8.86 * BM3 0.40 1.48 1.37-2.37-5.21-6.97-0.15 1.80 9.31 * 2.03 * 3.83 * 2.89 * 10.30 * BM4 1.93 2.73 1.49-1.50-3.33-5.79 0.40 4.89 * 5.13 * 2.67 * 2.23 * 2.37 * 8.63 * BM5-1.04-0.85 0.78-1.64-5.14-7.10-0.31 1.30 8.00 * 2.32 * 1.68 * 2.04 * 8.31 * BM6 0.71 1.28 0.97-1.01-3.83-6.06-0.70 2.01 4.08 * 3.18 * 2.79 * 2.16 * 7.76 * BM7-2.06-1.77 0.80-1.15-6.71-8.72 0.74 0.99 7.41 * 0.74 3.04 * 3.04 * 7.70 * BM8 0.20 1.04 1.23-1.68-4.13-6.24 0.07-0.13 6.88 * 1.38 3.06 * 3.25 * 9.23 * BM9-0.73-0.03 1.52-1.91-5.51-7.79 1.95 0.51 5.75 * 0.79 1.62 * 4.08 * 7.48 * BM1-1.19-1.18 1.67-2.02-5.75-7.14 0.21-2.36 5.64 * 2.37 * 3.78 * 3.05 * 7.55 * #Sig 0 0 1 0 0 0 0 1 10 7 10 9 10 0.09 0.71 1.18-1.62-4.61-6.78 0.22 1.10 6.74 1.89 2.56 2.58 8.42 10 MKT A Campbell and Thompson 2008 BM1,,BM10 PCF 12 * Clark and West 2007 MSPE-adjusted 5% # Sig 5% MKT

D/P D/Y D/E SVR E/P B/M INF NTIS TO M0G M1G M2G PCF MKT 0.30 0.98 1.84-2.01-4.78-7.13 0.76 1.23 7.79 * 2.05 * 2.61 * 2.97 * 9.30 * OC1 1.55 3.03 1.88-2.93-3.18-5.50 0.23 0.17 9.12 * 2.20 * 2.45 * 2.85 * 11.01 * OC2-0.92-0.39 1.26-1.57-5.80-8.22-1.07 0.72 8.41 * 2.06 * 2.77 * 2.59 * 8.54 * OC3 2.98-3.01 0.47-1.09-8.31-11.4-0.15-1.00 10.37 * 1.07 2.82 * 1.92 * 8.83 * OC4-0.88-0.36 0.77-1.40-5.92-8.78-0.34 1.70 8.47 * 1.59 * 1.90 * 1.44 * 8.95 * OC5-1.14-0.83 1.52-1.67-6.85-8.62-0.20 0.67 9.46 * 1.71 * 2.07 * 2.15 * 9.39 * OC6 0.98 1.39 0.35-1.40-3.43-5.27 1.35 1.54 4.85 * 1.26 * 1.71 * 2.66 * 6.21 * OC7 2.53 3.41 * 1.95-1.12-1.95-3.77 1.04 1.86 4.87 * 1.45 3.35 * 2.34 * 9.03 * OC8 0.30 0.86 0.76-1.08-2.45-4.82 0.44-2.39 7.19 * 1.39 * 1.62 * 1.61 * 7.79 * OC9 0.90 1.70 1.68-1.42-2.99-4.67 0.29 0.55 6.13 * 1.49 * 2.89 * 2.24 * 8.13 * OC10 0.94 1.43 1.77-1.82-3.89-5.53 0.13 2.53 4.28 * 2.89 * 2.86 * 3.18 * 7.21 * #Sig 0 1 0 0 0 0 0 0 10 8 10 10 10 0.13 0.72 1.24-1.55-4.48-6.67 0.17 0.63 7.31 1.71 2.44 2.30 8.51 Campbell and Thompson 2008 OC1,,OC10 10 MKT A PCF 12 * Clark and West 2007 MSPE-adjusted 5% # Sig 5% MKT 7 2002 2006 2007 2009 02-06 07-09 02-09 02-06 07-09 02-09 02-06 07-09 02-09 MKT 4.31 11.82 9.30 A B AGR 5.10 3.48 4.00 TRS -1.37 8.47 6.16 SVC 5.81 9.59 8.53 MNS 1.26 5.10 3.67 INF -0.49 8.39 4.70 MED -1.64 5.98 2.84 MAN 3.72 10.11 8.16 WRS 4.66 9.17 7.57 MUT 2.55 10.37 8.09 UTL 0.04 6.12 4.41 FIN 4.06 9.95 6.84 2.41 8.17 6.19 CNT 2.16 5.03 4.17 PRT 5.49 14.38 11.37 C S1 8.55 9.49 9.15 S5 3.69 9.57 7.79 S9 2.83 11.06 8.70 S2 5.73 9.71 8.41 S6 5.19 10.95 9.19 S10 5.20 10.26 8.38 S3 5.49 10.17 8.67 S7 4.03 10.41 8.33 4.91 10.13 8.49 S4 4.75 10.01 8.39 S8 3.62 9.62 7.92 D BM1 3.91 10.75 8.36 BM5 3.56 10.47 8.31 BM9 2.71 9.76 7.48 BM2 4.65 10.90 8.86 BM6 4.80 9.68 7.76 BM10-0.21 11.64 7.55 BM3 5.80 12.21 10.30 BM7 0.12 10.57 7.70 3.56 10.72 8.42 BM4 6.61 9.95 8.63 BM8 3.66 11.31 9.23 E OC1 6.38 13.64 11.01 OC5 3.83 12.73 9.39 OC9 3.13 10.09 8.13 OC2 2.12 11.51 8.54 OC6 3.27 7.58 6.21 OC10 5.58 8.21 7.21 OC3 1.63 12.71 8.83 OC7 4.94 10.59 9.03 3.55 10.91 8.51 OC4 3.30 11.60 8.95 OC8 1.36 10.40 7.79 A B C D E 2002 2006 2007 2009 Campbell and Thompson 2008 02-06 2002 2006 07-09 2007 2009 02-09

5 12 4 TO M0G M1G M2G TO PCF 3 10.30% BM3 7.48% BM9 7 D 2002 2006 BM10-0.21% 2007 2009 2002 2006 6 12 TO M0G M1G M2GG 5% PCF 5% 6.21% OC6 11.21% OC1 7 E OC1 2002 2006 2007 2009 2007 2009 2002 2006 3 Stambaugh 1983 Ferson and Korajczyk 1995 beta 5 i J K K K (6) (7) Stambaugh 1983

(8) 7 i 9 (9) 5 (10) i (11) 5 11 12 i (12) 12 (13) (14) 10 beta 8 8 Ferson and Korajczyk 1995 Look Ahead Bias Lo and MacKinlay 1990 Data-Snooping

3 4 5 6 13 10 10 10 A AGR 4.25 * -0.25 TRS 8.20 * -2.23 SVC 8.12 * 0.45 MNS 6.23 * -2.72 INF 7.05 * -2.53 MED 4.70 * -1.94 MAN 8.24 * -0.10 WRS 7.98 * -0.44 MUT 8.46 * -0.41 UTL 6.32 * -2.04 FIN 5.88 * 1.02 CNT 7.53 * -3.64 PRT 9.56 * 2.00 * B S1 11.93 * -3.16 S5 8.76 * -1.06 S9 8.30 * 0.45 S2 10.25 * -2.05 S6 9.13 * 0.07 S10 8.82 * -0.48 S3 9.95 * -1.42 S7 7.92 * 0.44 S4 9.40 * -1.11 S8 7.74 * 0.19 C BM1 7.67 * 0.74 BM5 9.36 * -1.16 BM9 7.98 * -0.54 BM2 8.22 * 0.70 * BM6 9.03 * -1.39 BM10 8.48 * -1.01 BM3 9.51 * 0.88 * BM7 8.19 * -0.54 BM4 8.50 * 0.14 BM8 9.37 * -0.16 D OC1 10.04 * 1.08 * OC5 9.29 * 0.11 OC9 9.09 * -1.06 OC2 8.89 * -0.38 OC6 7.90 * -1.83 OC10 7.29 * -0.09 OC3 9.78 * -1.05 OC7 8.78 * 0.28 OC4 8.54 * 0.45 OC8 8.23 * -0.48 A B C D * Clark and West 2007 MSPE-adjusted 5% 8 13 10 10 10 1 0 2 1 PRT 13 2002 2009 2007 Sun and Tong 2003 Boycko, Shleifer, and Vishny, 1996 Morck, Yeung, and Yu 2000

9 9 4 9 White 1980 t -2.12 8.99 18.96% -0.34 1.45-3.49 11.86 50.34% -0.78 2.85 3.28 5.15 11.82% 0.61 0.97 1.65 6.98 41.25% 0.55 2.37 8 9 4 50.34% 41.25% 2007 Hong, Torous, and Valkanov 16 IC 8 40.78% Fama-French

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