The paper Value at Risk and the Cross-Section of Expected Returns: Evidence from China, co-written by Yifeng Zhu and Pingshu Gui, has been officially accepted by the Pacific-Basin Finance Journal, an internationally renowned financial journal. Yifeng Zhu is our school’s Associate Professor. Pingshu Gui is Zhu’s student who major in International Finance and a finalist in the Sixth Excellent Academic Undergraduate Talent Training Program of our school and was granted Bachelor's Degree in 2019, and now is a master degree candidate at the School of International Relations, the University of Chinese Academy of Social Sciences.

In the Chinese stock market, we find that the cross-sectional relation between value-at-risk (VaR) and expected returns is unclear, which is different from the recent findings in the U.S. Additionally, VaR is negatively related with expected returns and cannot be explained by idiosyncratic volatility, momentum, short-term reversal, or maximum daily return during a high consumer confidence period. In contrast, no significant relation is observed between VaR and expected returns during a period of low consumer confidence.

We contribute to the existing literature in four aspects. First, we are the first to investigate the negative predictive power of the value-at-risk on expected equity returns in the Chinese stock market. Second, the existence of this predictive power is unclear, which is different from the recent findings in the United States. Third, we observe that the relation between VaR and expected returns changes for different levels of consumer confidence. The negative VaR effect on expected returns exists and cannot be explained by idiosyncratic volatility, momentum, short-term reversal, or maximum daily return during period of high consumer confidence. No significant relation is observed between VaR and expected returns during a period of low consumer confidence. This suggests that investors exhibit stronger risk preference characteristics during periods of high consumer confidence, which supports the Cumulative Prospect Theory and Disposition Effect and providing the industry a trading strategy. Lastly, different from U.S.-based stocks, the stock institutional ownership ratio does not play an important role in the VaR effect on expected returns in the Chinese market at any level of consumer confidence, indicating that institutional investors in the Chinese market are not more cautious than retail investors, which provides a reference for the relevant authorities to guide the behavior of institutional investors.