Value-growth Returns Of Domestic Public Companies

It’s well established that firms with low market-to-book ratios(value firms)are rewarded with higher average returns than firms with high market-to-book ratios(growth firms),giving rise to the so-called value premium around the world.So,investors should buy in stocks of value firms rather than stocks of growth stocks when participate in stock markets.There are plenty of research around the world have confirm that the value premium exists in many stock markets of different countries.Besides,existing foreign research provides two main explainations to the premium :risk and mispricing.However,domestic research rarely explain the value premium in domestic stock markets.Under this circumstance,this paper is based on previous studies on value premium.The sample is from Shanghai and Shenzhen Stock Market,all public firms in the market between 2005 and 2015.This paper tries to answer two questions.First,whether there is value premium in China’s stock market.Further more,what caused the value premium,whether it is common risk factors or mispricing.After studying in domestic public companies,there are two main conclusions.First,value premium exists no matter what indicator we choose,PB,PE or PC ratio.Additionally,value premium can not be explained by common risk factors.In other words,value premium is not caused by risk premium.In another hand,market expectation errors approach proposed by Piotroski and So’s(2012)do explain value premium.Therefore,value premium is mainly caused by mispricing.