RT Journal Article
SR Electronic
T1 China A-Shares: Strategic Allocation to Market and Factor Premiums
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP jpm.2021.1.245
DO 10.3905/jpm.2021.1.245
A1 Wilma de Groot
A1 Laurens Swinkels
A1 Weili Zhou
YR 2021
UL https://pm-research.com/content/early/2021/05/07/jpm.2021.1.245.abstract
AB 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: Security analysis and valuation, emerging markets, analysis of individual factors/risk premia, portfolio constructionKey Findings▪ Investors need to decide how much to allocate to the China A-share market now 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 the 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.