What happens if you take a strategy that’s (sort of) reliably worked in the U.S. over a long period and see if it can be applied to the A-share markets in China?
That’s what Jason C. Hsu, Vivek Viswanathan, Chenhui Wang and Philip Wool with the University of California’s Anderson School of Business and Rayliant Global Advisors respectively, decided to do by applying factor modelling to the A-share markets.
In seeking clarity I found the authors of the paper only reinforced my own long-held notion about how un-analyzable China’s A-share markets (presently) are.
The biggest problem is data; there just isn’t enough of it. Although China kicked off its A-share markets officially in 1990 it wasn’t until well into that decade we began to get a usable data set. On top of this the structure of the market has altered significantly over its short life and, as the paper highlights, a major change in accounting that took place in 2006 makes before 2007 and after 2007 comparisons problematic.
The authors found that not much that has worked in the past in the U.S. has reliable application in China; but it might. There’s just not enough data, yet, to be able to say for sure. Perhaps size and value work? In the study these were about the only factors that seemed to produce significant results; but not equally well both sides of 2007.
Surely, stock prices don’t move of their own accord. The next time though somebody tells you they know what drives A-shares you might like to have this paper to hand. Your would-be guide, whether they know it or not, will be a purveyor of highfalutin’ snake oil. You may, now with solid proof, or not, chose to point that out?
Investing sure is hard. You can access the paper in full via this link Anomalies in A-Shares.
Happy Sunday.