Constructing a Multifactor Model for the Shanghai Stock Exchange

Hsin-Hung Chen, Kuang-Ping Ku and Hsiu-Yu Lee

Emerging Markets Finance and Trade, 2015, vol. 51, issue S4, S51-S67

Abstract: We examine the validity of five factor models for explaining the time-series and cross-sectional variations in stock returns in the Shanghai Stock Exchange. The factor models include four models proposed by previous literature. Moreover, we propose a four-factor model (comprising market, size, book-to-market, and sales-to-price factors) to explain variations of stock returns in the Shanghai Stock Exchange. The results show that the Shanghai stock market exhibits size, book-to-market, and sales-to-price effects. Both the adjusted coefficient of determination and regression model intercepts indicate that the proposed four-factor model explains variations of stock returns in the Shanghai Stock Exchange more effectively in comparison with other multifactor models.

Date: 2015
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DOI: 10.1080/1540496X.2015.1026720

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