Stock Return Asymmetry in China

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