The style and innate structure of the stock markets in China

Abstract

By applying symbolic principal component analysis (SPCA) to 10 years (1996–2005) of interquartile data, we find that two factors—corporate style and corporate performance—parsimoniously characterize the innate structure of the Chinese stock markets. Further analysis shows that the seemingly peculiar negative beta/return relation is not truly anomalous but is associated to using a very high risk-free rate, pervasive negative returns, and stock styles. The negative returns in recent years coincided with the bearish stock market, which started in mid-2001. Time-indexed zoom-star plots also confirm a trend of high speculation on growth stocks in recent years.