A new five-factor green pricing model in China

Zhao Zhao and Meiting Zhang

Applied Economics, 2025, vol. 57, issue 10, 1042-1055

Abstract: We construct the green factor in China based on the premium of the green concept stocks. Replacing the investment factor in the five-factor model with the green factor, we propose a new five-factor green pricing model. We find that the green risk premium is significant in China’s stock market: portfolios constructed with green stocks outperform those constructed with non-green stocks by 3.4% to 3.7% annually. Moreover, the green premium cannot be explained by other factors. Our five-factor model strongly dominates the four-factor model without the green factor and the five-factor model. For the 25 size-EP (size-ROE) portfolios, our five-factor model yields lower GRS statistics and lower average absolute alphas than the other models. Results of Fama-Macbeth regressions also support the superior performance of our five-factor model.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2024.2311062 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:57:y:2025:i:10:p:1042-1055

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2024.2311062

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().