Sumerianz Journal of Economics and Finance

    
Online ISSN: 2617-6947
Print ISSN: 2617-7641

Archive

Volume 3 Issue 8 (2020)

Empirical Analysis on Excess Return and Risk of Individual Stock in the Chinese Stock Market

Authors : Shih-Yung Wei ; Li-Wei Lin ; Su-Rong Yan ; Shuo Wang
Abstract:
This paper discusses the excess return, January effect and condition of risk premium of individual stock in Shenzhen and Shanghai stock markets, combined with size effect and status of industry sectors. The results indicate that 103 listed companies in China have significant excess return, including up to 45.45% of these listed companies belongs to the financial industry. The risk of financial industry, however, is larger than that of the market. The January effect also exists in the Chinese stock market, where up to 63% of companies have a higher excess return in January than in other months. In addition, the incidence of excess return in January is 15.80%, while in other months down to 6.58%. From the perspective of company scale, with a large company scale, the possibility of excess return in January is high. In other industry sectors, there exists relatively higher occurring of January excess return in hotel industry, food and beverage industry, transportation, warehousing and post services. This may be associated with the Chinese New Year Festival.

Pages: 119-132

The Sharpe Ratio With Skewness

Authors : Liang Tang ; George Xiang
Abstract:
We propose an investment choice model to improve existing risk-adjusted performance measures by incorporating portfolio skewness. Building on a partial differential equation analysis, we demonstrate that a risk-adjusted performance measure maximizes investor expected utility. To evaluate the Sharpe ratio with skewness adjustment for all investors, we price second-order returns using first-order returns and show that the resulting ratio is the sum of the Sharpe ratio due to first-order returns and the Sharpe ratio due to second-order returns. We further show that the Sharpe ratio with skewness adjustment increases with return mean, decreases with volatility, and non-decreases with skewness. Finally, we test the Sharpe ratio with skewness using 299 market indexes including country indexes such as the MSCI China a index and S and P 500. The test reveals that the Sharpe ratio with skewness can accurately assess performance of wide-range assets. Our model anchors a risk-adjusted performance measure to an investment choice.

Pages: 107-118