Does the investment-profitability correlation affect the factor premiums? Evidence from China

Shan Chen, Xujun Liu and Tao Li

Pacific-Basin Finance Journal, 2023, vol. 79, issue C

Abstract: We investigate whether the investment-profitability correlation affects the investment and profitability premiums in the U.S. and Chinese markets. By replicating the results of Kilic, Yang and Zhang (2022), we confirm that the factor premiums are lower when the investment-profitability correlation is high in both markets. However, unlike the U.S. market, mitigating the correlation effect does not resurrect the insignificant investment premium in China. In contrast, the profitability factor earns robust returns under different specifications.

Keywords: Cross-section of stock returns; Investment premium; Profitability premium; Chinese market (search for similar items in EconPapers)
JEL-codes: G10 G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000781

DOI: 10.1016/j.pacfin.2023.102012

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