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Stock return predictability and model instability: evidence from mainland China and Hong Kong

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dc.contributor.author Hong, Hui
dc.contributor.author Chen, Naiwei
dc.contributor.author O'Brien, Fergal
dc.contributor.author Ryan, James
dc.date.accessioned 2018-05-02T15:25:23Z
dc.date.issued 2018
dc.identifier.uri http://hdl.handle.net/10344/6811
dc.description peer-reviewed en_US
dc.description.abstract This study examines the predictability of the Shanghai Composite, Shenzhen Composite and the Hang Seng China Enterprise index returns during the period 1993 to 2010, with emphasis on whether considering structural breaks in model parameters improves the stock return predictability. Results indicate higher linear stock return predictability for the Hong Kong market than for the Chinese markets. However, the results differ when model instability is considered. Specifically, using Bai and Perron’s (1998, 2003) approach, the results indicate the presence of structural breaks particularly for the Shenzhen market, which appear to coincide with major economic events or political and institutional changes. The predictable component in stock returns is also time-varying when re-estimating the model over different subsamples defined by the break. Overall, results highlight the importance of considering breaks in forecasting stock returns, and suggest that the Hong Kong market is a relatively ideal haven to park wealth for risk-averse investors whereas the Shenzhen market offers enhanced opportunities for risk-seeking investors. en_US
dc.language.iso eng en_US
dc.publisher Elsevier en_US
dc.relation.ispartofseries The Quarterly Review of Economics and Finance;68, pp. 132-142
dc.relation.uri https://doi.org/10.1016/j.qref.2017.11.007
dc.rights This is the author’s version of a work that was accepted for publication in The Quarterly Review of Economics and Finance . Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published inThe Quarterly Review of Economics and Finance, 2018, 68, pp. 132-142, https://doi.org/10.1016/j.qref.2017.11.007 en_US
dc.subject model instability en_US
dc.subject structural breaks en_US
dc.subject return predictability en_US
dc.subject China en_US
dc.subject Hong Kong en_US
dc.title Stock return predictability and model instability: evidence from mainland China and Hong Kong en_US
dc.type info:eu-repo/semantics/article en_US
dc.type.supercollection all_ul_research en_US
dc.type.supercollection ul_published_reviewed en_US
dc.identifier.doi 10.1016/j.qref.2017.11.007
dc.date.embargoEndDate 2019-11-14
dc.embargo.terms 2019-11-14 en_US
dc.rights.accessrights info:eu-repo/semantics/openAccess en_US


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