PT - JOURNAL ARTICLE AU - Sébastien Lleo AU - William T. Ziemba TI - Predicting Stock Market Crashes in China AID - 10.3905/jpm.2018.1.078 DP - 2018 Apr 04 TA - The Journal of Portfolio Management PG - jpm.2018.1.078 4099 - https://pm-research.com/content/early/2018/04/04/jpm.2018.1.078.short 4100 - https://pm-research.com/content/early/2018/04/04/jpm.2018.1.078.full AB - Predicting stock market crashes is extremely valuable for all investors. Several useful prediction models have been developed, focusing on mature financial markets, in North America, Europe, and Japan. The authors investigate whether traditional crash predictors—the price-to-earnings ratio (P/E), the cyclically adjusted price-to-earnings ratio (CAPE), and the bond–stock earnings yield differential model (BSEYD)—predict crashes for the Shanghai Stock Exchange Composite Index and the Shenzhen Stock Exchange Composite Index in mainland China. Using data from the early 1990s to the end of 2016, the authors find that the P/E ratio has predictive value for both exchanges over the entire period. When testing the P/E, CAPE, and BSEYD over a shorter nine-year period, the authors find that all measures had a higher predictive value for the Shenzhen index, where smaller, privately owned companies are listed, than for the Shanghai index, where larger, often state-owned enterprises trade.