Are Trend Factor in China? Evidence from Investment Horizon Information

71 Pages Posted: 25 Aug 2023

See all articles by Jiangyuan Li

Jiangyuan Li

Shanghai University of Finance and Economics

Chang Liu

Shanghai University of Finance and Economics

Chenye Liu

Shanghai University of Finance and Economics

Peng Sun

Shanghai University of Finance and Economics

Abstract

This paper improves the expected return variable and the corresponding trend factor documented by Han, Zhou, and Zhu (2016) and reveals the incremental predictability of this novel expected return measure on stock returns in the Chinese stock market. Portfolio analyses and firm-level cross-sectional regressions indicate a significantly positive relation between the improved expected return and future returns. These results are robust to the short-, intermediate-, and long-term price trends and other derived expected returns. Our improved trend factor also outperforms all trend factors constructed by other expected returns. Additionally, we observe that lottery demand, capital states, return synchronicity, investor sentiment and information uncertainty can help explain the superior performance of the improved expected return measure in the Chinese stock market.

Keywords: Trends, Moving averages, Lagged returns, Predictability, Chinese Stock Market

Suggested Citation

Li, Jiangyuan and Liu, Chang and Liu, Chenye and Sun, Peng, Are Trend Factor in China? Evidence from Investment Horizon Information. Available at SSRN: https://ssrn.com/abstract=4551925 or http://dx.doi.org/10.2139/ssrn.4551925

Jiangyuan Li (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

Chang Liu

Shanghai University of Finance and Economics ( email )

Chenye Liu

Shanghai University of Finance and Economics ( email )

Peng Sun

Shanghai University of Finance and Economics ( email )

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