Taming the Factor Zoo: New Evidence from China

Dongxu Chen, Xieyang Shen, Tao Liu and Dehua Shen

Discrete Dynamics in Nature and Society, 2021, vol. 2021, 1-16

Abstract: We address the well-known “factor zoo†problem in the Chinese stock market. By replicating a generation of pricing factors, we verify the Liu–Stambaugh–Yuan four-factor model which subsumes other counterparts in the Chinese A-share market. We further construct a characteristic library and apply the double-selection LASSO approach to explore whether significant anomalies contribute to current pricing factors. We find that some anomalies indeed play a significant role in pricing cross-sectional returns, but the improvement to the Liu–Stambaugh–Yuan four-factor model is limited.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:9592906

DOI: 10.1155/2021/9592906

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