Accounting Valuation and CrossSectional Stock Returns in China

Abstract

Using accounting-based valuations, Frankel and Lee (1998) document a positive association between fundamental value-to-price ratio (V/P) and abnormal stock returns in subsequent periods. They attribute the V/P effect to the market’s gradual adjustment of stock prices towards a fundamental value, and this is regarded as counter-evidence for market efficiency (i.e. mispricing). This synopsis aims to examine whether the V/P effect also holds for Chinese companies.