The Study Of Quality Effect Of A-share Listed Companies In China

With the establishment and continuous improvement of China's socialist market economic system,China's economy has been growing steadily,and the per capita disposable income of residents has continued to increase.Many families have been trying to manage their finances by investing in securities such as stocks or purchasing funds.On the other hand,China's qualified foreign institutional investor system,Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect have been attracting more than trillions of overseas investment funds.MSCI,FTSE Russell,S & P Dow Jones and other global well-known index companies have successively added A-shares market stocks into their index systems.China's stock market has been playing a more and more important role in the world.Recently many foreign scholars commence research on what a high-quality listed company is.By summarizing the same characteristics between high-quality companies,the "Quality Factor" constructed has actually shown a strong premium.Novy-Marx(2012)named the effect of obtaining significant excess returns when investing in uncommonly productive assets as "Quality Effect".As a result,the quality effect has gradually appeared in people's field of vision,and several index companies have also launched their respective quality stock indexes.However,the specific performance of quality effect in China's stock market and the possible reasons behind it need further research.Therefore,this paper takes all A-share listed companies from 2000 to 2019 as the research sample.Beginning with the analysis of Gordon's growth model,the quality of a company is a comprehensive feature constructed from four sub-components,that are profitability,payout/dilutive,security and growth.Then,the quality factor is constructed from these four dimensions.The paper assigns all the sample to 10 qualitysorted portfolios,and then different pricing models,time period and control variable dual grouping methods,Fama-Macbeth regression and other methods are used to analyze the existence,robustness and underlying reasons of quality effect.Through empirical research,this paper finds that there is indeed quality effect in China's stock market.With the increasing of company quality in portfolio,the yield of portfolio shows an upward trend.The stock return of high-quality companies is significantly higher than that of low-quality companies.In order to study the robustness of the quality effect,this paper uses stock market value,book-to-market value ratio,turnover rate,idiosyncratic volatility,momentum factor,age and different time periods as control variables for robustness testing.The paper finds that the quality effect still exists significantly no matter how these control variables change.Fama-Macbeth regression method is used for regression.It's found that the coefficient of quality factor is still significantly positive even when the control variables are added,which further verified the existence of quality effect.Combining with behavioral finance theories,a reasonable explanation for the high-yield phenomenon of high-quality stocks is proposed,and it is believed that the investor's expectation bias has caused the existence of quality effects.The time series characteristics of the quality factor are researched and it is found that the quality factor has strong stability.Then by studying the analyst's consistent expected return,the investor's expected bias is found.Finally,the quality factor is added to the pricing model to study the effect of quality factor on pricing,which finds that the relative price of high-quality stocks is higher.Through these tree studies,the explanation for the quality effect is sufficiently verified.In addition,the premium of high-quality company can be practically applied in the capital market.Combining quality factor with other effective factors can be used to construct stock selection models and formulate investment strategies.China's index companies can also launch independent research and develop their own quality indexes to fill the gap and provide diversified references for the majority of individual and institutional investors.For the large number of individual investors in China's stock market,considering the quality of companies can reduce the probability of "buying a stock that will cause a huge loss" and reduce the risk of investment in a certain extent.In terms of investor education and policy recommendations,the existence of quality effect suggests investors to buy the stocks of high-quality companies and short the stocks of low-quality companies.If China's stock market regulators or securities media conduct relevant publicity and education for investors,not only can it effectively reduce the crazy phenomenon of "junk stocks" speculation which appears from time to time in China's stock market,but it can also allow these high-quality companies to gain market attention and reduce their refinancing costs.Such survival of the "fittest" can better bring into play the basic functions of China's stock market,promote the replacement of old growth drivers with new ones in China's economic development and realize economic transformation.