The value premium puzzle, behavior versus risk: new evidence from China

Article

Clark, E. and Qiao, Z. 2020. The value premium puzzle, behavior versus risk: new evidence from China. The Quarterly Review of Economics and Finance. 76, pp. 12-21. https://doi.org/10.1016/j.qref.2019.04.007
TypeArticle
TitleThe value premium puzzle, behavior versus risk: new evidence from China
AuthorsClark, E. and Qiao, Z.
Abstract

This paper investigates the value premium puzzle in the Chinese stock market. After establishing that the value premium does exist in the Chinese stock market, it uses an innovative technique based on stochastic dominance theory to test the behavior based versus risk based explanations for the puzzle. We find no evidence of a systematic behavioral factor, such as over/under-reaction, that is driving this premium. This finding is robust with respect to negative and positive return regimes. We do, however, find strong evidence that the value premium reflects compensation for bearing more risk associated with financial inflexibility.

PublisherElsevier
JournalThe Quarterly Review of Economics and Finance
ISSN1062-9769
Publication dates
Online24 Apr 2019
Print31 May 2020
Publication process dates
Deposited26 May 2020
Accepted09 Apr 2019
Output statusPublished
Accepted author manuscript
License
Copyright Statement

© 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license.

Digital Object Identifier (DOI)https://doi.org/10.1016/j.qref.2019.04.007
LanguageEnglish
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Quarterly Review of Econ and Fin.pdf
License: CC BY-NC-ND 4.0

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