TITLE:
Fundamental Analysis in China: An Empirical Study of the Relationship between Financial Ratios and Stock Prices
AUTHORS:
Lijuan Ma, Marcel Ausloos, Christophe Schinckus, H. L. Felicia Chong
KEYWORDS:
China, Fundamental Analysis, Stock Prices
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.15,
November
29,
2018
ABSTRACT: The informational context is regularly questioned in
a transitional economic regime like the one implemented in China or Vietnam.
This article investigates this issue and the predictive power of fundamental
analysis in such context and more precisely in a Chinese context with an
analysis of 3 different industries (media, power, and steel). Through 3
different kinds of correlation, we examine 25 financial determinants for 60
Chinese listed companies between 2011 and 2015. Our results show that
fundamental analysis can effectively be used as an investment tool in
transitional economic context. Contrasting with the EMH for which the
accounting information is instantaneously integrated into the financial
information (stock prices), our study suggests that these two levels of
information are not synchronized in China opening therefore a door for a
fundamental analysis based prediction. Furthermore, our results also indicate
that accounting information illustrates quite well the economic reality since financial reports in each industry
can disclose a part of stock value information in line with the economic
situation of the industry under consideration.