Multi-Factor Conditional Equity Premium Model: Evidence from China’s Stock Market

76 Pages Posted: 12 Sep 2018 Last revised: 6 Nov 2020

See all articles by Hang Cheng

Hang Cheng

Dongbei University of Finance and Economics

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Yongdong Shi

Dongbei University of Finance and Economics (DUFE)

Date Written: August 27, 2018

Abstract

We investigate the risk-return relation using data from China. Because it is segmented from the
rest of the global financial market, China’s market allows us to shed new light on this important
relation of which previous empirical evidence is inconclusive. Market variance and scaled market
prices jointly forecast excess market returns. The relation with conditional equity premium is
positive for market variance and negative for scaled market prices, although the two predictors
correlate positively with each other. These findings are similar to those documented in the U.S.
market; they suggest a multi-factor conditional equity premium model.

Keywords: China's stock market; Risk-Return Tradeoff; Time-Varying Equity Premium; Time-Varying Stock Market Variance; Limited Stock Market Participation; A Shares; B Shares; H Shares

JEL Classification: G12

Suggested Citation

Cheng, Hang and Guo, Hui and Shi, Yongdong, Multi-Factor Conditional Equity Premium Model: Evidence from China’s Stock Market (August 27, 2018). Available at SSRN: https://ssrn.com/abstract=3239209 or http://dx.doi.org/10.2139/ssrn.3239209

Hang Cheng

Dongbei University of Finance and Economics ( email )

217 Jianshan Street
Dalian, LiaoNing
China
+86-15940838115 (Phone)

HOME PAGE: http://www.dufe.edu.cn

Hui Guo (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)

HOME PAGE: http://homepages.uc.edu/~guohu/

Yongdong Shi

Dongbei University of Finance and Economics (DUFE) ( email )

School of Finance
Dalian 116025
China
+86-411-4712805 (Phone)
+86-411-4710432 (Fax)

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