Stock Return Asymmetry in China

58 Pages Posted: 19 Feb 2021 Last revised: 11 Apr 2022

See all articles by Dongxu Chen

Dongxu Chen

Renmin University of China

Ke Wu

Renmin University of China

Yifeng Zhu

School of Finance, Central University of Finance and Economics

Date Written: April 7, 2022

Abstract

In this study, we find that the upside asymmetry calculated based on a new distribution-based asymmetry measure proposed by Jiang et al. (2020) is negatively related to average future returns in the cross-section of Chinese stock returns. Conversely, when using the conventional skewness measure, the relationship between asymmetry and the average returns is unclear. Furthermore, an asymmetry factor constructed from the new asymmetry measure cannot be explained by the three- (CH-3) or four-factor (CH-4) models proposed by Liu, Stambaugh, and Yuan (2019). When augmenting the CH-3 model with our asymmetry factor, the augmented four-factor model can explain 32 anomalies out of a universe of 37 significant anomalies in the Chinese stock market, outperforming both the CH-3 and CH-4 models.

Keywords: Stock return asymmetry, anomaly, factor model

JEL Classification: G11, G12

Suggested Citation

Chen, Dongxu and Wu, Ke and Zhu, Yifeng, Stock Return Asymmetry in China (April 7, 2022). Pacific-Basin Finance Journal, Vol. 73, 101757, 2022, Available at SSRN: https://ssrn.com/abstract=3724761 or http://dx.doi.org/10.2139/ssrn.3724761

Dongxu Chen

Renmin University of China ( email )

Room B906
Xianjin Building
Beijing, Beijing 100872
China

Ke Wu

Renmin University of China ( email )

59 Zhongguancun Street
Beijing, 100872
China

HOME PAGE: http://sf.ruc.edu.cn/info/1412/9666.htm

Yifeng Zhu (Contact Author)

School of Finance, Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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