Discussion of “Valuation of China’s Stock Market: Mispricing of Earnings Components”

Chuan-Yang Hwang

Summary

• Separate Earnings of China’s stock market into Core (CE) and Non-core (NCE) components.

• CE is more persistent than NCE as expected.

• Investors underreact to CE and overreact to CE.

• A profitable trading strategy can be constructed by long stock with hihg CE and short stocks with low NCE– Chinese stock market is not efficient.

Comments (1)

• Gongmeng Chen, Michael Firth &Daniel Ning Gao (2011):The Information Content of Earnings Components: Evidence from Chinese Stock Markets, European Accounting Review

• This paper show exactly the same results listed in the summary.

• It has somewhat longer data 1995-2008 (1995-2005 in this paper).

• It also examine the mispricing related to ownership (private firm vs. SOE).

Comments (2)

• In Table 5,

• Would the results hold with the following specification?

• The t values in pooled regression are overstated, should use cluster standard deviation to calculate t valued

. • To differentiate from the publish paper, consider studying how

your results depend on information environment (such as firm size, analyst coverage).

1 1 2t ttRET CE NCE controls

1 20, 0

1 1 2 1 2t t t ttRET CE NCE CE NCE controls