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An empirical study on the Chinese A-share: value stocks vs. growth stocks
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This paper compares the performance of value and growth strategy in the Chinese A-share markets in the post-reform period. The cumulative performance of annually rebalanced value and growth portfolio sorted by book-to-value ratio indicate that value strategy outperforms growth strategy over the time frame from January 2007 to October 2017. One can also observe a weak average value premium of 0.44% to 0.45% per month. However, the rolling window analysis indicates that the value premium in the A-share market is not robust over different time frames and investment horizons. As the time frame and investment duration vary, value strategy fails to outperform consistently. There no strong evidence to support a robust short-term or long-run advantage of value strategy. The weak and inconsistent value effect could be a result of the short horizon of the sample as there are only 129 months totally in the post-reform period. More importantly, the very strong speculative sentiment in the A-share markets is likely to be the cause for the weak value premium. Besides, another value metric, EBIT/Enterprise value, is compared with the book-to-market ratio. The results show that value portfolio sorted by book-to-market ratio has better performance than value portfolio sorted by EBIT/Enterprise value ratio.
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Chinese stock market A-share Value premium Factor trading strategy