The China-U.S. Equity Valuation Gap

94 Pages Posted: 5 Mar 2021 Last revised: 26 May 2021

See all articles by Geert Bekaert

Geert Bekaert

Columbia Business School - Finance and Economics

Shuojia Ke

Tsinghua University - PBC School of Finance

Xiaoyan Zhang

Tsinghua University - PBC School of Finance

Date Written: May 22, 2021

Abstract

Before 2009, the market average price earnings ratio of Chinese firms is significantly higher than that of the U.S. firms, while after 2009, the valuation gap reverses. Using data from 1995 to 2018, we examine the dynamics and sources of valuation differentials between comparable Chinese and U.S. firms. The sectoral composition of the indices plays a minimal role but growth expectations, financial openness, financial development, and (changes in) the investor base, all contribute substantially to the cross-sector and time-series variation of the valuation differentials. Financial openness and changing growth expectations are the most important contributors.

Keywords: Chinese stock prices, market integration, financial development, stock valuation, earnings yields, price earnings ratios, speculative trading

JEL Classification: F36, G15, G18

Suggested Citation

Bekaert, Geert and Ke, Shuojia and Zhang, Xiaoyan, The China-U.S. Equity Valuation Gap (May 22, 2021). Available at SSRN: https://ssrn.com/abstract=3760292 or http://dx.doi.org/10.2139/ssrn.3760292

Geert Bekaert

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Shuojia Ke

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Xiaoyan Zhang (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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