The value premium puzzle, behavior versus risk: new evidence from China

Clark, Ephraim A. and Qiao, Zhuo (2020) The value premium puzzle, behavior versus risk: new evidence from China. The Quarterly Review of Economics and Finance, 76 . pp. 12-21. ISSN 1062-9769 (doi:10.1016/j.qref.2019.04.007)

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This paper investigates the value premium puzzle in the Chinese stock market. After establishing that the value premium does exist in the Chinese stock market, it uses an innovative technique based on stochastic dominance theory to test the behavior based versus risk based explanations for the puzzle. We find no evidence of a systematic behavioral factor, such as over/under-reaction, that is driving this premium. This finding is robust with respect to negative and positive return regimes. We do, however, find strong evidence that the value premium reflects compensation for bearing more risk associated with financial inflexibility.

Item Type: Article
Research Areas: A. > Business School > Accounting and Finance
Item ID: 30245
Notes on copyright: © 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license.
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Depositing User: Jisc Publications Router
Date Deposited: 26 May 2020 12:32
Last Modified: 02 Jul 2020 09:32

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