Size and Value in China

56 Pages Posted: 24 Jan 2018 Last revised: 13 Dec 2018

See all articles by Jianan Liu

Jianan Liu

University of Pennsylvania, The Wharton School, Students

Robert F. Stambaugh

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Yu Yuan

Shanghai Mingshi Investment Company; University of Pennsylvania - Wharton Financial Institutions Center

Multiple version iconThere are 2 versions of this paper

Date Written: December 11, 2018

Abstract

We construct size and value factors in China. The size factor excludes the smallest 30% of firms, which are companies valued significantly as potential shells in reverse mergers that circumvent tight IPO constraints. The value factor is based on the earnings-price ratio, which subsumes the book-to-market ratio in capturing all Chinese value effects. Our three-factor model strongly dominates a model formed by just replicating the Fama and French (1993) procedure in China. Unlike that model, which leaves a 17% annual alpha on the earnings-price factor, our model explains most reported Chinese anomalies, including profitability and volatility anomalies.

Keywords: Size; Value; China; Factors; Anomalies

JEL Classification: G12, G14, G15

Suggested Citation

Liu, Jianan and Stambaugh, Robert F. and Yuan, Yu, Size and Value in China (December 11, 2018). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3108175 or http://dx.doi.org/10.2139/ssrn.3108175

Jianan Liu

University of Pennsylvania, The Wharton School, Students ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

Robert F. Stambaugh

University of Pennsylvania - The Wharton School ( email )

The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yu Yuan (Contact Author)

Shanghai Mingshi Investment Company ( email )

488 M Yincheng Road
Shanghai
China

University of Pennsylvania - Wharton Financial Institutions Center

3733 Spruce Street
Philadelphia, PA 19104-6374
United States

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