On the Pricing Of Chinese Stocks

This study identifies the leading risk attributes to Chinese stock returns. We demonstrate that the forecasting ability of a multifactor expression that includes micro (fundamental) risk factors conditioned by time-varying macro global and local risk factors is significantly superior to the forecasting ability of simpler nested unconditional models. We conclude that micro and macro local and global risks are instrumental in describing the return-generating process of Chinese equities. Using an attribution analysis, we further show that the valuation of Chinese equities is largely conditioned by expected changes in local and global macro risks, and less by unconditional micro risk premiums