The Impacts of The Systematic, Idiosyncratic Risks and Market Sentiment on China A-Shares Performances

The purposes of this paper are (i) to examine 3 driving factors affecting China A-shares market performance; namely systematic risk, idiosyncratic risk, and market sentiment, and (ii) to investigate the relationship between state-owned enterprise (SOE) & non-SOE and stock returns. In addition, the study also analyze normal condition and the impacts of Sino-US trade war and Covid-19 pandemic. This study employs monthly data which is divided into two parts namely (i) 2004-2020 period and (ii) 2018-2020 period. Multiple classic asset pricing models are employed to investigate the impacts of the 3 driving factors on stock returns. The results showed that these 3 driving factors exert significant influence on China A-shares in 2004-2020, However, the impact of market sentiment is weak during the period 2018-2020. Furthermore, market risks, firm size and B/M factor show great impacts on both SOE and non-SOE, profitability factor affecting non-SOE stock return is more important than investment which improves SOE stock return. This study proposes that investors and companies pay more attention to systematic risk and idiosyncratic risk, which potentially have greater impact on the stock market and to reduce unnecessary economic losses.