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Finding Anomalies in China

Kewei Hou, Fang Qiao and Xiaoyan Zhang (zhangxiaoyan@pbcsf.tsinghua.edu.cn)
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Kewei Hou: Ohio State U
Fang Qiao: U of International Business and Economics, Beijing

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: To study the cross-section of returns in the Chinese stock market, we follow the anomaly literature and construct 454 strategies between 2000 and 2020, based on 208 firm-level trading and accounting signals. With the conventional single-testing t-statistic cutoff of 1.96, 101 strategies have significant value-weighted raw returns, and 20 remain significant after risk adjustments. To avoid false discoveries, we recalibrate the t-statistic cutoff to 2.85 to accommodate multiple testing. 36 strategies survive the higher hurdle rate in value-weighted raw returns, while none remains significant after risk adjustments. When we use machine learning techniques to combine information from multiple signals, the resulting composite strategies mostly have significant returns after risk adjustments, even with the higher t-statistic cutoff. We relate Chinese anomaly returns to aggregate economic conditions and find that they comove with financial market development, accounting quality, market liquidity, and government regulations.

JEL-codes: G1 G12 (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-acc, nep-big, nep-cmp, nep-cna, nep-fdg and nep-fmk
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2023-02

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