A re-examination of firm's attributes and share returns: Evidence from the Chinese A-shares market

It is widely accepted that some firms' attributes or characteristics, such as a firm's size or book-to-market ratio, attract premiums in terms of average returns, which is a pervasive phenomenon not restricted to just a few individual markets. However, the way to derive these premiums by sorting firms based on their characteristics that are known to be associated with share returns, is not without controversy. This study takes a totally different approach by adopting a novel Self-Organizing Maps approach to cluster share returns first and identify the attributable factors afterwards. It finds eminent presence of the value effect in the Chinese A-shares market. It also finds that two other firm attributes, ROA and cash-flow-to-price, also have explanatory power over share returns. Liquidity and the ratio of tradable to total shares, which are often used to proxy corporate governance, show little evidence of explaining share return dispersion. Surprisingly, a “reversed” size effect is reported in this study.