Multi-Factor Conditional Equity Premium Model: Evidence from China’s Stock Market
76 Pages Posted: 12 Sep 2018 Last revised: 6 Nov 2020
Date Written: August 27, 2018
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: Suggested Citation