Asset allocation in the chinese stock market: The role of return predictability

In this article the authors investigate asset allocation in the Chinese stock market from the perspective of incorporating return predictability. Based on a host of return predictors, they find significant out-of-sample return predictability in the Chinese stock market. They then examine the perform...

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Bibliographic Details
Main Authors: CHEN, Jian, JIANG, Fuwei, Jun TU
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2015
Subjects:
Online Access:https://ink.library.smu.edu.sg/lkcsb_research/4775
https://ink.library.smu.edu.sg/context/lkcsb_research/article/5774/viewcontent/SSRN_id2774692.pdf
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Institution: Singapore Management University
Language: English
Description
Summary:In this article the authors investigate asset allocation in the Chinese stock market from the perspective of incorporating return predictability. Based on a host of return predictors, they find significant out-of-sample return predictability in the Chinese stock market. They then examine the performance of active portfolio strategies—such as aggregate market timing as well as industry, size, and value-rotation strategies—designed to profitably exploit return predictability. Strong evidence is found by the authors that these portfolio strategies incorporating return predictability can deliver superior performance—up to 600 basis points per annum and almost double the Sharpe ratios—compared with the passive buy-and-hold benchmarks that ignore return predictability.