A comparison of factor models in China

Jinzhe Wang and Yifeng Zhu

Journal of Empirical Finance, 2024, vol. 79, issue C

Abstract: We evaluate the performance of eleven asset pricing models in the Chinese A-share market using a variety of test portfolios and statistical methodologies. To compile the test portfolios, we construct 105 anomalies and use the 23 significant anomalies as test assets for model comparison. The results indicate that, in time-series test and anomaly explanations, the Hou et al. (2019) five-factor q model demonstrates the best overall performance. The pairwise cross-sectional R2 tests and multiple model comparison tests further affirm that the Hou et al. (2019) five-factor q model, the Fama and French (2018) six-factor (FF6) model, and the Kelly et al. (2019) five-factor Instrumented Principal Component Analysis (IPCA5) model are the top performers. Notably, the performance of the five-factor q model remains robust across various experimental designs.

Keywords: Factor models; IPCA model; Model evaluation; Chinese stock market (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:79:y:2024:i:c:s0927539824000823

DOI: 10.1016/j.jempfin.2024.101548

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