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The relevance of earning‐to‐price and ROE predictability for explaining Shenzhen stock exchange (SZSE), returns in China: A dynamic panel data approach
Author(s) -
Arshad Muhammad Usman
Publication year - 2021
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22503
Subject(s) - predictability , econometrics , economics , financial economics , stock (firearms) , stock exchange , panel data , china , dividend yield , dividend , stock market , dividend policy , statistics , mathematics , finance , geography , context (archaeology) , archaeology
The fundamental valuation (FV) perspective has been extended to the Shenzhen Stock Exchange (SZSE) in China by focusing on the role of forecasted earning‐to‐price ratio and return on equity (ROE). Forecasting the variables is being done using a linear dynamic panel data technique. The findings of the two‐step Generalized Method of Moments (GMM) analysis indicate that the forecasted E/P ratio and ROE significantly explain a portion of the variation in the SZSE stock return and remain highly statistically significant after risk proxy variables are included. Additionally, it confirms the existence of size, momentum, liquidity, and dividend yield in the SZSE. This supports the usefulness of an FV perspective based on the unique characteristics of the Chinese equity market in explaining stock returns and their potential utility in forecasting future stock returns.