Factor models for Chinese A-shares

56 Pages Posted: 10 Sep 2021 Last revised: 2 Feb 2023

See all articles by Matthias X. Hanauer

Matthias X. Hanauer

Technische Universität München (TUM); Robeco Quantitative Investments

Maarten Jansen

Robeco Asset Management

Laurens Swinkels

Erasmus University Rotterdam (EUR); Robeco Quantitative Investments

Weili Zhou

Robeco Asset Management

Date Written: February 1, 2023

Abstract

We compare the performance of commonly employed asset pricing models on a large, liquid, but mostly segmented Chinese A-shares equity market. When restricting ourselves to factor models developed for the U.S. equity market, the q-factor model performs well. However, it is outperformed by a modified Fama-French six-factor model and by a four-factor asset pricing model tailored to the Chinese A-shares market. A data-driven method results in a seven-factor model but does not reduce the pricing errors to a set of test assets. The ranking of asset pricing models changes when we incorporate transaction costs. Both direct and data-driven model comparison methods now lead to a three-factor model comprising a market, size, and earnings-based value factor.

Keywords: Anomalies, Asset pricing, China, Equity markets, Emerging markets, Factor models, Investing

JEL Classification: C58, D53, G11, G12, G15

Suggested Citation

Hanauer, Matthias Xaver and Jansen, Maarten and Swinkels, Laurens and Zhou, Weili, Factor models for Chinese A-shares (February 1, 2023). Available at SSRN: https://ssrn.com/abstract=3918833 or http://dx.doi.org/10.2139/ssrn.3918833

Matthias Xaver Hanauer

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany

HOME PAGE: http://www.professors.wi.tum.de/fm/team/researcher/dr-matthias-hanauer-cfa/

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

HOME PAGE: http://www.robeco.com/en/insights/authors/matthias-hanauer.html

Maarten Jansen

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

Laurens Swinkels (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Robeco Quantitative Investments ( email )

Rotterdam, 3000
Netherlands
+31 10 224 2470 (Phone)
+31 10 224 2110 (Fax)

Weili Zhou

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands
+31-10-2242222 (Phone)

HOME PAGE: http://www.robeco.com/quant

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