The Cross-Section and Cyclical Analysis of Expected Stock Returns: Evidence from China’s A-Share Market

This paper investigates the factors which capture the cross-sectional variation in average monthly stock returns on Chinese main board A-share stock market from 1999 to 2014. Using univariate sorting test, univariate and multivariate cross-sectional regressions, we fail to find any relationship between beta and stock returns. However, we find that there are positive liquidity and size effects in China’s A-share market, and liquidity in our test has the strongest power to explain the stock returns which very few researchers have ever found. Additionally, we find no relationship between stock returns and E/P, C/P and D/P. Finally, significant factors vary across China’s stock market cycles, bear market and bull market, but it still stands in the cyclical tests that liquidity is the most explanatory factor of stock returns.