Profitability premium in China stock markets.

• Main Authors: He, Jiaxin., Li, Jing., Zhao, Shuohan.
• Other Authors: Chang Xin
• Format: Final Year Project
• Language: English
• Published: 2013
• Subjects: DRNTU::Business
• Online Access: http://hdl.handle.net/10356/51574
• Institution: Nanyang Technological University

This paper aims to test the robustness of profitability strategies in generating incremental returns to value strategies in China stock markets. Our results show that the book-to-market ratio has very strong power in predicting stock returns, while profitability, measured by gross profits-to-assets, has little. Hence controlling for profitability only improves the performance of value strategies slightly, despite that the two are negatively correlated. Taken together, our results suggest that combining the two strategies does not yield significant diversification benefits.