Research Article Open Access

Why the Dogs of the Dow Bark Loudly in China

Carol Wang1, James E. Larsen1, Fall M. Ainina1, Marlena L. Akhbari1 and Nicolas Gressis1
  • 1 Wright State University, United States


Problem statement: The Dogs of the Dow (Dow Dogs) strategy, which has gained widespread popularity in the U.S., is found to be considerably successful in China’s stock markets. This trading strategy contradicts the well-established efficient market hypothesis. Approach: This study examines the cross-sectional variations in the magnitude of the predictive power of the Dow Dogs strategy using Chinese stocks for 1994-2009. Results: Our results suggest that (1) Significant Dow Dogs effect apply to Class A shares, but not Class B shares; (2) Stocks priced between $1 and $5 demonstrate the strongest Dogs effect among all stock price ranges; (3) Changes in share price range has the most powerful impact on risk adjusted return, followed by changes in the AB share class, rebalancing frequency and number of Dogs in the portfolio. Conclusion: Our results suggest that the superior predictive power of the Dow Dogs strategy is mainly driven by behavioral factors. Our overall findings support the behavioral hypothesis in which market inefficiency stems from investors irrationality and herding behaviors. This study provides practical implications to both government regulators and finance practitioners. JEL Classification: G14, G15.

American Journal of Economics and Business Administration
Volume 3 No. 3, 2011, 560-568


Submitted On: 21 August 2011 Published On: 4 November 2011

How to Cite: Wang, C., Larsen, J. E., Ainina, F. M., Akhbari, M. L. & Gressis, N. (2011). Why the Dogs of the Dow Bark Loudly in China. American Journal of Economics and Business Administration, 3(3), 560-568.

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  • Dogs of the Dow
  • China stock market
  • market efficiency
  • Dow Jones Industrial Average (DJIA)
  • capital markets
  • foreign investors
  • herding behaviors
  • market economy
  • Shenzhen Stock Exchange (SZSE)
  • State-Owned Enterprises (SOEs)