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The Journal of Portfolio Management

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China A-Shares: Strategic Allocation to Market and Factor Premiums

Wilma de Groot, Laurens Swinkels and Weili Zhou
The Journal of Portfolio Management Non-US Financial Markets 2021, 47 (7) 131-149; DOI: https://doi.org/10.3905/jpm.2021.1.245
Wilma de Groot
is head of Quantitative Equities Portfolio Management at Robeco in Rotterdam, the Netherlands
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Laurens Swinkels
is an assistant professor of Finance at Erasmus University and Senior Researcher at Robeco, both in Rotterdam, the Netherlands
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Weili Zhou
is head of Quantitative Equities Research at Robeco in Rotterdam, the Netherlands
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Abstract

The authors investigate the added value of strategically allocating to the Chinese A-shares equity market. Their results indicate a positive contribution to a portfolio that only considers traditional developed and emerging equity markets and bonds. The authors find that a diversified A-shares portfolio based on value, quality, and momentum factors exhibits significantly better risk-adjusted performance than the passive A-shares market portfolio. Consequently, allocating to Chinese A-share factor premiums significantly improves the efficient frontier. The conclusions remain similar when incorporating conservative estimates of trading costs or when constructing value-weighted portfolios, which represent more realistic investor returns.

TOPICS: Fundamental equity analysis, emerging markets, analysis of individual factors/risk premia, portfolio construction

Key Findings

  • ▪ Investors need to decide how much to allocate to the China A-share market now that the market is opening up.

  • ▪ We find that a diversified A-shares factor portfolio based on value, quality, and momentum factors exhibits significantly better risk-adjusted performance than a passive A-shares market portfolio.

  • ▪ Benefits from a factor portfolio in China A-shares remain when incorporating conservative estimates of trading costs, which are relevant in presenting realistic investor returns.

  • © 2021 Pageant Media Ltd
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The Journal of Portfolio Management: 47 (7)
The Journal of Portfolio Management
Vol. 47, Issue 7
Non-US Financial Markets 2021
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China A-Shares: Strategic Allocation to Market and Factor Premiums
Wilma de Groot, Laurens Swinkels, Weili Zhou
The Journal of Portfolio Management Jun 2021, 47 (7) 131-149; DOI: 10.3905/jpm.2021.1.245

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China A-Shares: Strategic Allocation to Market and Factor Premiums
Wilma de Groot, Laurens Swinkels, Weili Zhou
The Journal of Portfolio Management Jun 2021, 47 (7) 131-149; DOI: 10.3905/jpm.2021.1.245
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  • Article
    • Abstract
    • COMPARING CHINA A-SHARES EQUITY MARKET TO OTHER MAJOR MARKETS
    • STRATEGIC ALLOCATION TO CHINA A-SHARES MARKET
    • ALLOCATING TO CHINA A-SHARES FACTOR PREMIUMS
    • THE IMPACT OF TRADING COSTS
    • ROBUSTNESS ANALYSES
    • CONCLUSION
    • ACKNOWLEDGMENTS
    • ENDNOTES
    • REFERENCES
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