Stock Return Asymmetry in China
50 Pages Posted: 19 Feb 2021 Last revised: 18 Mar 2021
Date Written: December 20, 2020
In this paper, we find that the upside asymmetry calculated based on a new distribution-based asymmetry measure proposed by Jiang, Wu, Zhou, and Zhu (2020) is negatively related to average future returns in the crosssection of Chinese stock returns. By contrast, when using a conventional skewness measure, the relationship between asymmetry and average returns is unclear. Furthermore, the asymmetry factor constructed from the new asymmetry measure cannot be explained by the three-factor (CH-3) and four-factor (CH-4) models proposed by Liu, Stambaugh, and Yuan (2019). When augmenting the CH-3 model with our asymmetry factor, the new four-factor
model is able to explain 33 anomalies out of a universe of 37 significant anomalies in the Chinese stock market.
Keywords: Stock return asymmetry, anomaly, factor model
JEL Classification: G11, G12
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