Title: Chinese stock market and evaluation (1994–2005)

Authors: A. Haque, Wang Shaoping

Addresses: School of Economics, Huazhong University of Science and Technology, Foreign Student Apartments, Room No. 13, Wuhan, China. ' School of Economics, Huazhong University of Science and Technology, Room No. 514, Wuhan, China

Abstract: Using data of listed Chinese companies and applying fixed effect technique, we report some stylised facts about stock market valuation. Based on the Gordon (1962) present-value model, slow growing and frequently traded firms with fewer A shares have higher market valuations. Uncertainty measured by volatility of daily stock market returns has significant negative effect on stock market valuation. Higher risk perception leads to arbitrage and frequent short-term investment. The present market spread may allocate resources inefficiently and can have devastating effects on the economy. With steady and committed reforms, market might expand, allocate capital efficiently and help finance China|s economy.

Keywords: Chinese stock market; fundamentals; stock market valuation; uncertainty; volatility; China; risk perception; arbitrage; short-term investment; resource allocation; capital allocation; emerging markets.

DOI: 10.1504/IJBEM.2008.019242

International Journal of Business and Emerging Markets, 2008 Vol.1 No.1, pp.14 - 23

Published online: 03 Jul 2008 *

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