Evaluating asset pricing models: A revised factor model for China

Zhiyong Li and Xiao Rao

Economic Modelling, 2022, vol. 116, issue C

Abstract: We develop a revised factor model, accounting for unique features of Chinese markets, and evaluate the performance of competing asset pricing models. Extant literature reveals that eliminating the smallest 30% of stocks improves the performance of factor models. The revised factor model excludes firms with a high expected probability of becoming shells, which are companies valued as shells in reverse mergers serving as an alternative way to go public. Our revised model has the smallest model specification errors and the best explanatory power among various constructed portfolios. This new finding suggests that our model offers an effective benchmark model for empirical asset pricing in the Chinese stock market.

Keywords: Shell value; Chinese IPO System; Factor models; Anomalies (search for similar items in EconPapers)
JEL-codes: G12 G14 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:116:y:2022:i:c:s0264999322002425

DOI: 10.1016/j.econmod.2022.106001

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