Tian Ding , Wenjing Song , Jiangze Bian , Ge Zhang
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Southbound capital flows and stock return predictability
This paper examines the impact of southbound cross-border capital flows on stock returns in the Hong Kong stock market. The study finds that southbound capital flows can significantly predict short-term returns on Hong Kong stocks. After adjusting for the Fama-French five-factor model, a weekly rebalancing long-short portfolio can achieve an annualized return of up to 25.84 %. This result remains robust in both predictive panel regression and Fama-MacBeth regression. Further mechanism tests indicate that the predictive power of southbound capital flows is primarily driven by demand shocks.
期刊介绍:
The Pacific-Basin Finance Journal is aimed at providing a specialized forum for the publication of academic research on capital markets of the Asia-Pacific countries. Primary emphasis will be placed on the highest quality empirical and theoretical research in the following areas: • Market Micro-structure; • Investment and Portfolio Management; • Theories of Market Equilibrium; • Valuation of Financial and Real Assets; • Behavior of Asset Prices in Financial Sectors; • Normative Theory of Financial Management; • Capital Markets of Development; • Market Mechanisms.