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Impacts of concentrated stock holding of concentrated holding family on fund performance and net value crash risk: evidence from equity funds

YU Jin;HOU Weixiang;JIANG Ping

Economic Review,No. 01

【Abstract】 This paper empirically studied the influence of concentrated stock holding of domestic and foreign concentrated holding fund families on fund performance and net value crash risk and interpreted these from the perspectives of timing and stock selection abilities of funds. The results indicate that concentrated stock holding of domestic and foreign concentrated holding fund families can obtain a remarkable excess market return, but only the concentrated stock holding of foreign concentrated holding fund families can obtain significant excess return adjusted by multiple risk factors, but these will bring more crash risk. Further study shows that concentrated stock holding of foreign concentrated holding fund families have greater net value crash risk compared with those of domestic concentrated holding fund families. Both funds have better stock selection ability and worse timing ability, but the former is worse on timing ability. Our conclusion is of great significance to the fund regulator and fund investor.

Rural growth experience and stock market participation

JIANG Jinglin;WANG Zhengwei;LIAO Li

Economic Research Journal,Vol 53,No. 08

【Abstract】 Limited stock market participation is a key issue in household finance. Although standard theory predicted universal participation, empirical investigations found that many households did not participate in the stock market and so did not earn equity premiums. The literature used fixed participation costs, nonstandard preferences, beliefs and a lack of trust to explain this issue. However, these attributes can only explain a part of the wide dispersion in participation rates. As the stock market is an important investment tool for households to increase their wealth, promoting stock market participation benefits China’s real economy. Hence, limited stock market participation is an important topic from both academic and practical perspectives. This study examined an important but unappreciated determinant of stock market participation: early-life experiences. A large literature in finance showed that personal life experiences influenced people’s risk-taking behavior both in the laboratory and in the field. Yet, the long-run effect of early-life experiences on stock market participation behavior has been ignored to date. In this paper, we focused on the impact of early-life experiences on stock market participation. China, with its large rural-urban disparity, provides an ideal research setting for two reasons. First, being exposed to a rural environment for a long time at a young age is a randomly assigned characteristic due to the strict migration restrictions that have existed for several decades. Whether one is exposed to rural areas is determined by where one is born, which cannot be altered. Second, unlike in most developed countries, there are huge socioeconomic differences in both the immediate setting and the social systems of rural and urban areas. In this dual system, living in rural areas implies a totally different ecology for children compared with those living in urban areas. This salient disparity makes it a credible identification of childhood exposure. Third, concerns over selection bias can be addressed in this setting because rural residents are much less educated than urban residents with rural growth experiences during childhood. This paper examined whether rural growth experiences affected the stock market participation of urban residents using individual-level data in China. Using China Family Panel Studies (CFPS) data, we identified rural growth experiences by household registration type in childhood. In our empirical test, we found that rural growth experiences hindered stock market participation. The economic magnitude of the effect is quite large; and individuals with rural growth experience are 5.4% less likely to participate in the stock market, which is equivalent to a 44% decrease in the unconditional probability of participation (12.2%). The finding held true even after we controlled for personal differences in trust, social interaction, risk attitude, financial literacy, early-life socioeconomic status and a large set of household demographic and economic characteristics. Providing further evidence, the relation between rural growth experiences and stock market participation does not weaken with wealth. This implies that early-life experiences explain why the rich stay away from the stock market even though they can afford the fixed participation cost. Building on these findings, we further investigated what could mitigate the adverse effect of rural growth experiences on stock market participation. Inspired by the literature on personality traits, we hypothesized that the influence of openness affected the relation between rural growth experiences and stock market participation. We found that a higher level of openness significantly mitigated the effect of rural growth experiences. In fact, we found that rural childhood exposure did not have an impact on stock market participation among people with high levels of openness. These findings are consistent with the predictions of psychology. Our study’s main contribution is to consider early-life experiences as a underlying determinant of stock market participation. To the best of our knowledge, the relation between early-life experiences and stock market participation has not been well addressed by the literature, especially in China’s setting. We show that people’s decisions to hold stocks are related to their rural growth experiences. Moreover, our findings provide new evidence for the long-run effect of childhood experiences on individual economic decisions.

The effect of value-added tax rate on firm value: evidence from the reaction of stock market

LIU Hang;YE Kangtao

Management World,Vol 34,No. 11

【Abstract】 The logic of the VAT rate affecting the firm is quite different from that of other taxes. However, the research has not paid enough attention to the impact of the VAT rate. Using China’s reforms in April 2017 to reduce the 13% VAT rate to 11%, and based on the event study, this paper found that compared with other firms, shareholders of firms with reduced VAT rates increased their wealth by an average of about 0.3% in the [0, 1] event window period, which is equivalent to an increase in the total wealth of the 37 billion shareholders. The following empirical analysis examines the two paths of VAT rate affecting firm value: “price effect” and “tax burden effect.” We have further identified specific sources of “tax burden effects.” In addition, we found that the “tax burden effect” has a greater impact than the “price effect” comparatively. Finally, the value effect of the VAT rate mainly exists in non-state-owned firms; the existence of export tax rebate policy makes non-export firms more affected by the VAT rate. This paper provides empirical evidence of the value effect of VAT rate, and systematically reveals the specific source of the value effect of VAT rate and the relative importance of each source, which makes the conclusion of this paper have important theoretical value and policy implications.

Buffett’s Alpha: evidence from the Chinese stock market

HU Yi;GU Ming

Management World,Vol 34,No. 08

【Abstract】 Using Chinese A-share stock data from 2005 to 2016, we tested whether Warren Buffett’s investing style strategy is profitable in the Chinese stock market. We constructed a comprehensive index B-score to capture the characteristics of Buffett-style strategy in three dimensions, including safety, cheapness and quality. We find that B-score has strong explanatory power for cross-sectional stock returns, and the predictive power of B-score is robust and persistent. The profitability of the B-score strategy is even positive during the extremely volatile period of 2015–2016. We further showed that the gradual information diffusion, investor limited attention and lottery-like stocks feature could help understand our findings. This paper provides strong evidence that value investment strategy works in the Chinese stock market.

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