Trend Factor in China: The Role of Large Individual Trading

49 Pages Posted: 13 Jun 2019 Last revised: 16 Sep 2020

See all articles by Yang Liu

Yang Liu

Tsinghua University - School of Economics & Management

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Yingzi Zhu

Tsinghua University - School of Economics & Management

Date Written: September 15, 2020

Abstract

We propose a 4-factor model for the Chinese stock market by adding a trend factor into the market, size, and value of Liu, Stambaugh, and Yuan’s (2019) 3-factor model. Because of up to 80% of individual trading, the trend factor captures salient relevant price and volume trends, and earns a monthly Sharpe ratio of 0.48, much greater than that of the market (0.11), size (0.20), and value (0.28). The 4-factor model explains well a number of stylized facts and anomalies of the Chinese stock market. It also explains well mutual fund returns, serving as an analogue of Carhart’s (1997) model in China.

Keywords: Chinese Stock Market, Individual Trading, Factor Model, Anomalies, Mutual Funds

JEL Classification: G12, G14, G15

Suggested Citation

Liu, Yang and Zhou, Guofu and Zhu, Yingzi, Trend Factor in China: The Role of Large Individual Trading (September 15, 2020). Available at SSRN: https://ssrn.com/abstract=3402038 or http://dx.doi.org/10.2139/ssrn.3402038

Yang Liu (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing
China

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

Yingzi Zhu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62786041 (Phone)

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