Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM
- Chair: Allaudeen Hameed, National University of Singapore
The Real Value of China's Stock Market
AbstractThis paper shows that, counter to common perception, stock prices in China are strongly linked to firm fundamentals. Since the reforms of the early 2000s, stock prices are as informative about future profits as they are in the US. Although the market is segmented from international equity markets, Chinese investors price individual stock characteristics like other global investors: they pay up for size, growth, liquidity, and long shots, while they discount for systematic risk. Price informativeness is significantly correlated with corporate investment efficiency. For international investors, China's stock market offers high average returns and low correlation with other equity markets.
Nowhere to Run, Nowhere to Hide: Asset Diversification in a Flat World
AbstractThis paper presents new indexes of investment diversification potential within and among country equity, sovereign debt, and real estate asset classes. The diversification indexes derive from estimates of asset return integration based on common global factors. The indexes reveal a marked and near ubiquitous decline in diversification potential across asset classes and markets for the post-2000 period. The reduction in diversification opportunity is associated with sharply higher levels of investment risk. Analysis of panel data suggests that declines in diversification potential are associated with country economic development and internet diffusion. Diversification also waned during the 1992 ERM and 2009-2010 European sovereign debt crises. The findings are robust to macro-financial and market liquidity influences and to proxies for economic, political, and financial risk. The results offer a cautionary note regarding asset class and geographic diversification of investment risk in an increasingly flat world.
- G1 - General Financial Markets