China-Concept Factor and Stock Returns in Taiwan

Chau-Chen Yang (), Cheng Few Lee, Yi-Jung Chen () and Ling Hu ()
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Chau-Chen Yang: Department of Finance, College of Management, National Taiwan University, 1 Roosevelt Road, Sec. 4, Taipei, Taiwan
Yi-Jung Chen: Taiwan Securities Co., Ltd., 12F, No. 118, Sec. 4, Ren-ai Rd., Taipei, Taiwan
Ling Hu: Department of Finance, College of Management, National Taiwan University, 1 Roosevelt Road, Sec. 4, Taipei, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2008, vol. 11, issue 01, 99-122

Abstract: This study investigates whether there is a "China-concept factor", a common variation of stock returns, for firms that are listed in Taiwan stock markets and have real investments in China. We employ a methodology similar to that used by Lamontet al.(2001) in examining whether there is a financial-constraints factor. Listed firms in Taiwan stock markets for the period 1990–2004 are used to form portfolios of firms based on observable characteristics related to their real investments in China. We find that firms investing heavily in China have stock returns moving together over time, which suggests that firms investing in China are subject to common shocks. Firms investing heavily in China are found to exhibit higher average stock returns. There exists a China-concept factor for firms listed in Taiwan stock market and have real investments in China.

Keywords: Stock returns; China-concept; factor models; common variation (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1142/S0219091508001283

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