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The five-factor asset pricing model, short-term reversal, and ownership structure – the case of China

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  • Chen, Jiun-Lin
  • Glabadanidis, Paskalis
  • Sun, Mingwei

Abstract

We find that the five-factor asset pricing model proposed by Fama and French (2015) is a better description of the Chinese stock market return than the three-factor model, but it is not a complete one. We propose a short-term-reversal (STR) factor and show it is highly significant. The STR factor substantially improves the pricing ability of three- and five-factor asset pricing models in explaining popular stock portfolio returns as well as Chinese mutual funds' returns. We also propose two additional factors based on state ownership and institutional ownership which further strengthen the existing asset pricing models. Finally, our test findings suggest that 17.57% of the Chinese mutual funds follow a money-losing short-term momentum strategy and around 98% of them have zero or negative abnormal returns.

Suggested Citation

  • Chen, Jiun-Lin & Glabadanidis, Paskalis & Sun, Mingwei, 2022. "The five-factor asset pricing model, short-term reversal, and ownership structure – the case of China," International Review of Financial Analysis, Elsevier, vol. 82(C).
    • Handle: RePEc:eee:finana:v:82:y:2022:i:c:s1057521922001120
    DOI: 10.1016/j.irfa.2022.102147
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    Cited by:

    1. Yue, Tian & Li, Tianjiao & Ruan, Xinfeng, 2023. "Does short-term momentum exist in China?," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    Asset pricing model; Five-factor model; Chinese stock market; Short-term reversal; State ownership; Institutional ownership;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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