Chimerica and Expected Return of Chinese Stocks: Using various econometrics methods with varying degrees of success, my research finds that the Chimerica phenomenon possibly exists ...
Head of Global Manager Research at BNY Mellon Wealth Management (USA)
Chimerica and Expected Return of Chinese Stocks: Using various econometrics methods with varying degrees of success, my research finds that the Chimerica phenomenon possibly exists in expected return of Chinese stocks, reflecting the symbiotic macroeconomic linkage between the two countries. The larger the corporation, the more “Chimerica” it is. Chimerica is a noticeable factor that exhibits itself in the stock return and is being distinctively priced from the well-known Fama-French three factors. Chinese stocks that were the least exposed to the U.S., and had the smallest market capitalization and the most growthy style performed the best in the decade between 2005 and 2015. The Chimerica premium was about 0.5% per annum. Sector portfolios based on forward-looking analyst forecasts could deliver more dramatic Chimerica premium at 1-2%. The best time to acquire and accumulate these stocks of low Chimerica exposure seems to be during down markets when others prefer to own companies with more geographically diversified exposure, i.e. of higher Chimerica scores.
Chimerica and Expected Return of US Stocks: This paper develops a scorecard to proxy for “Chimerica” and to measure the anomalous return associated with US firms’ overseas expansion in Greater China. Based upon ‘Chimerica’, the symbiotic relation between the People’s Republic of China and the United States of America, this paper uses a variety of approaches, some of which return-based such as regression analysis and Fama MacBeth estimation while others, fundamentalbased such as Claus/Thomas earnings analysis, and illustrates little success in proving that the US stock market has actually rewarded companies for doing business in China. The Chimerica premium was about 0.43% per annum from 2006 to 2010. Sector portfolios based on forward-looking analyst forecasts could deliver more dramatic Chimerica premium at 1-2%. However, results are mixed and not always consistent across approaches, especially after advanced econometric modelling and testing. Down-market protection seems to stand out though, for the higher himerica-scored companies and proves the benefit for global diversification of revenue streams in periods of market stress.
|Thesis Committee :||
Supervisor: Abraham Lioui, EDHEC Business School
External reviewer: Cesare Robboti, University of Georgia
Other committee member: Nikolaos Tessaromatis, EDHEC Business School