Department of Finance and Decision Sciences
Risk-return characteristics: Comparison of China's stock market and three other emerging markets
Brazil, Russia, India, and China (BRIC), the most rapidly developing countries in the twenty-first century, are expected to become the four dominant economies by the year 2050. This paper examines the risk and return characteristics of their stock markets over the past few years. The markets in Brazil, Russia, and China produce significantly positive mean excess return. China and Brazil not only have the largest Sharpe ratio, but also have the better fit to a conditional risk-return model in terms of stock returns variations. In all markets, the systematic risk, beta, is still the most important factor in explaining returns variations. Other risk measures, including unsystematic risk, skewness, and kurtosis, provide limited incremental explanatory power. However, while the intercept coefficient in the regression model is not significantly different from zero in Brazil, Russia, and India, the coefficient for China is significantly positive, indicating that the Chinese stock market generates positive abnormal risk-adjusted returns. © 2010 M.E. Sharpe, Inc. All rights reserved.
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Link to Publisher's Edition
Shum, Wai Cheong, and Gordon Tang. "Risk-return characteristics: Comparison of China's stock market and three other emerging markets." Chinese Economy 43.5 (2010): 15-31.