Trend Factor in China: The Role of Large Individual Trading
89 Pages Posted: 13 Jun 2019 Last revised: 6 Feb 2024
Date Written: June 15, 2018
Abstract
We propose a novel trend factor for the Chinese stock market, which incorporates both price and volume information to capture dominant individual trading, momentum, and liquidity. We find that volume plays a more significant role in the trend factor for China than for the US, reflecting the greater retail participation in China. By incorporating this trend factor into the 3-factor model of Liu et al. (2019), we propose a 4-factor model that explains a wide range of stylized facts and 60 representative anomalies. Our study highlights the important role of individual trading in asset pricing, especially in China.
Keywords: Chinese Stock Market, Individual Trading, Factor Model, Anomalies, Mutual Funds
JEL Classification: G12, G14, G15
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