Value spread as a predictor of stock returns : evidence from China.
Woon, Wei Xiang.
Sim, Ferarina Yun Rong.
Date of Issue2011
College of Business (Nanyang Business School)
The objective of this study is to investigate the predictive power of the value spread for stock returns. We conducted the study using China Stock Market & Accounting Research Database (CSMAR) data for the Chinese equity markets. We also analysed the predictive abilities of two other related variables: book-to-market spread and market-to-book spread. Our results are robust and reflect that the two variables have significant predictive powers. The book-to-market spread and the market-to-book predict returns in opposite signs. Our findings reveal that the value spread is a weak predictor of aggregate stock returns. Furthermore, its unstable beta seems to agree with Liu and Zhang’s (2008) conclusion that the value spread possesses acyclic properties. Taken together, we found that the book-to-market spread and the market-to-book spread are more useful in predicting stock returns as compared to the value spread.
Final Year Project (FYP)
Nanyang Technological University