Download This PaperSize and Value in China
Journal of Financial Economics (JFE), Forthcoming
Jacobs Levy Equity Management Center for Quantitative Financial Research Paper
56 Pages Posted: 24 Jan 2018 Last revised: 12 Aug 2020
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Size and Value in China
Size and Value in China
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: Suggested Citation
Robert F. Stambaugh
University of Pennsylvania - The Wharton School ( email )
The Wharton School, Finance Department
University of Pennsylvania
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United States
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