Size and Value in China

56 Pages Posted: 24 Jan 2018 Last revised: 12 Aug 2020

See all articles by Jianan Liu

Jianan Liu

University of Hong Kong; Shanghai Mingshi Investment Company

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, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=3108175 or http://dx.doi.org/10.2139/ssrn.3108175

Jianan Liu

University of Hong Kong

Pokfulam Road
Hong Kong, Hong Kong
China

Shanghai Mingshi Investment Company

488 M Yincheng Road
Shanghai
China

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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