Industry Concentration and Stock Returns in China A-Share Market

Industry market structure impacts asset pricing of listed firms from risk and accountant surplus because of its effects on cash flows and profits of firms. We choose all Shanghai Stock Exchange and Shenzhen Stock Exchange-listed A-share securities from July 2001 to June 2005 in this paper, and explore the relationship between industry concentration and stock returns in Chinese capital market. The results reveal that stock returns are significantly positively correlated with industry concentration even after controlling for size, book to market and momentum, that is also to say firms in more concentrated industries earn more returns. Furthermore, the correlation between two aspects is not impacted by cash flow shocks, risk factors and macro economy. This conclusion derived from this paper is useful for the guidance of investment decision-making on capital market.