{"title":"Firm-level productivity and stock return: New evidence from China","authors":"Ning Tang , Mengyao Gao , Yixun Zhou , Fangzhao Zhou , Jichen Zhu","doi":"10.1016/j.iref.2024.103557","DOIUrl":null,"url":null,"abstract":"<div><p>This study provides novel insights into the stock return predictability related to the firm-level total factor productivity (<em>TFP</em>) in the China's stock market, covering the period from 1999 to 2020. Contrary to studies on other countries, our research identifies a positive correlation between the productivity of Chinese firms and their future stock returns. We suggest that this correlation is driven by mispricing rather than risk premium. Specifically, we argue that investors' difficulties in accurately assessing firm-level productivity and limited attention result in the inadequate incorporation of this information into stock prices. Furthermore, our analysis explores additional factors contributing to the observed productivity-related market anomaly, including investor overconfidence, positive feedback trading, lottery preference, information uncertainty, and limits to arbitrage, indicating investors' irrationality and behavioral biases. Importantly, our study also demonstrates that firm-level productivity serves as a reliable predictor of a firm's future profitability.</p></div>","PeriodicalId":14444,"journal":{"name":"International Review of Economics & Finance","volume":"96 ","pages":"Article 103557"},"PeriodicalIF":4.8000,"publicationDate":"2024-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"International Review of Economics & Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1059056024005495","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
This study provides novel insights into the stock return predictability related to the firm-level total factor productivity (TFP) in the China's stock market, covering the period from 1999 to 2020. Contrary to studies on other countries, our research identifies a positive correlation between the productivity of Chinese firms and their future stock returns. We suggest that this correlation is driven by mispricing rather than risk premium. Specifically, we argue that investors' difficulties in accurately assessing firm-level productivity and limited attention result in the inadequate incorporation of this information into stock prices. Furthermore, our analysis explores additional factors contributing to the observed productivity-related market anomaly, including investor overconfidence, positive feedback trading, lottery preference, information uncertainty, and limits to arbitrage, indicating investors' irrationality and behavioral biases. Importantly, our study also demonstrates that firm-level productivity serves as a reliable predictor of a firm's future profitability.
期刊介绍:
The International Review of Economics & Finance (IREF) is a scholarly journal devoted to the publication of high quality theoretical and empirical articles in all areas of international economics, macroeconomics and financial economics. Contributions that facilitate the communications between the real and the financial sectors of the economy are of particular interest.