The cross section of expected stock returns in the Chinese A-share market

This analysis explores the cross-sectional relationship between stock returns and some firm-specific characteristics in the Chinese A-share market for the period 1994 to 2002. First, our results indicate that beta lacks explanatory power even when its effect is examined alone in the regression analysis. We also find that size has the most significant effect in capturing variations in stock returns over the whole period. Moreover, while previous studies have concluded that the A-share market is driven by market rumour and individual investors' sentiment, this analysis suggests that the book-to-market ratio is also significantly priced. Finally, the use of beta as a measure of systematic risk in China remains unsupported when the beta effect is re-examined in up-markets and down-markets respectively. (C) 2006 Elsevier Inc. All rights reserved.