Discussion of “Valuation of China’s Stock Market: Mispricing of Earnings Components” Chuan-Yang Hwang.

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Presentation transcript:

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 ( 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).