Size, book/market ratio and risk factor returns: evidence from China A‐share market

Abstract

Purpose

The purpose of this paper is to investigate the risk factors for A‐shares listed on both Shenzhen and Shanghai Stock Exchange in China using variables from Akgun and Gibson.

Design/methodology/approach

The paper applies cross‐sectional regression on the orthogonal components by rearranging these risk variables into several principal components.

Findings

The results produced strong evidence that size and book‐to‐market (BM) ratio could be well explained by these alternative risk variables. Additionally, the alternative variables are better at explaining returns in terms of adjusted R‐squares.

Practical implications

The practical implication of the study is that investors can improve both their pricing of the investment risk and their management of the risk factors with the alternatives identified in the study.

Originality/value

The paper provides evidence in explaining the size and BM effects in China's stock markets.

Citation

Chen, J., Leong Kan, K. and Anderson, H. (2007), "Size, book/market ratio and risk factor returns: evidence from China A‐share market", Managerial Finance, Vol. 33 No. 8, pp. 574-594. https://doi.org/10.1108/03074350710760304