The Determinants of Returns on China-Concept Stocks Listed in Taiwan Stock Market

Chau-Chen Yang (), Cheng Few Lee, Chung-Jiun Lin and Ya-Ting Chung
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Chau-Chen Yang: National Taiwan University, ROC
Chung-Jiun Lin: National Taiwan University, ROC
Ya-Ting Chung: Sinopack Bank, China

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2004, vol. 07, issue 02, 213-231

Abstract: We use a probit selection model to investigate whether the relation between stock returns and their fundamental determinants varies for China-concept and non-China-concept stocks. In addition, an ordered probit selection model is used as well to explore whether the determinants of stock returns change due to the different level of investments in China. There are a lot of reasons for Taiwanese firms to invest in China. The stock of a firm with capital investments in China is called China-concept stock. A firm can decide whether to go for its capital investments in China or not. It is interesting to investigate whether a firm's decision to invest in China affects the determination of stock returns or not. This investment decision should not be treated as exogenous in examining the determinants of stock returns. Hence, a two-stage selection model is employed for this purpose. We find that heavy-level-investment-in-China firms do exhibit a different relation between stock returns and their fundamental determinants. Book-to-market ratio is the most important determinant of stock returns for all firms.

Keywords: China-concept stocks; probit selection model; real investments; book-to-market ratio (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1142/S0219091504000093

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