The five-factor asset pricing model, short-term reversal, and ownership structure – the case of China

Jiun-Lin Chen, Paskalis Glabadanidis and Mingwei Sun

International Review of Financial Analysis, 2022, vol. 82, issue C

Abstract: We find that the five-factor asset pricing model proposed by Fama and French (2015) is a better description of the Chinese stock market return than the three-factor model, but it is not a complete one. We propose a short-term-reversal (STR) factor and show it is highly significant. The STR factor substantially improves the pricing ability of three- and five-factor asset pricing models in explaining popular stock portfolio returns as well as Chinese mutual funds' returns. We also propose two additional factors based on state ownership and institutional ownership which further strengthen the existing asset pricing models. Finally, our test findings suggest that 17.57% of the Chinese mutual funds follow a money-losing short-term momentum strategy and around 98% of them have zero or negative abnormal returns.

Keywords: Asset pricing model; Five-factor model; Chinese stock market; Short-term reversal; State ownership; Institutional ownership (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:82:y:2022:i:c:s1057521922001120

DOI: 10.1016/j.irfa.2022.102147

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