Concept Drift Mining of Fundamental Variables in China Stock Market

Abstract

We adopt the classical Fama and French (1992) [E.F. Fama, K.R. French, The Cross-Section of Expected Stock Returns, The Journal of Finance, 47 (1992) 427 - 465.] approach to investigate the effect of Beta, size, leverage, book value to market value (B/P), and earnings to price (E/P) ratio on the average monthly returns in the China Stock Market (CSM) from July 1998 to June 2011. The phenomenon of concept drift was found in this research. Our results indicate that the B/P has a significant negative correlation with the monthly average returns during this period, in contrast to the positive correlation found by a previous study by Wang and Di Iorio (2007) [Y. Wang, A. Di Iorio, The cross section of expected stock returns in the Chinese A-share market, Global Finance Journal, 17 (2007) 335 - 349.] that covered from July 1996 to June 2002. Meanwhile the small-firm effect remains significant. Thus, while the behavioral or institutional factors may account for the counter-intuitive finding of the effect of value in the transitional economy, the relationship between fundamental characteristics and stock returns is more complex in China and warrants more rigorous investigation. Further, we suggest that autonomic and cloud computing system has a number of potential applications in stock market concept drift mining.