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Asset pricing and nominal price illusion in China

Author

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  • Pujian Yang

    (Xinjiang Institute of Technology)

  • Liu Yang

    (Xinjiang Institute of Technology
    Xinjiang Institute of Technology)

Abstract

Based on the Fama’s three-factor model (FF3) and five-factor model (FF5), this study adds a low-priced stock premium factor LPP, and then builds a new four-factor and six-factor model respectively to examine the impact of low-price premium (LPP) on the pricing of China’s stock market. The research indicates that LPP is a reliable and effective pricing component in China’s A-share market, and it may be used as a systematic factor in the Chinese stock market’s asset pricing model. The LPP factor shows a strong negative association with stock excess returns. And the inclusion of the LPP in the FF3 and FF5 still passes the robustness test. Meanwhile, the six-factor model created by combining the LPP factor with the FF5 could explain Chinese stock market pricing better.

Suggested Citation

  • Pujian Yang & Liu Yang, 2022. "Asset pricing and nominal price illusion in China," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-9, December.
    • Handle: RePEc:pal:palcom:v:9:y:2022:i:1:d:10.1057_s41599-022-01133-4
    DOI: 10.1057/s41599-022-01133-4
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    Cited by:

    1. Yu, Xiaojian & Liu, Jianlin & Lien, Donald, 2023. "A new measure of fund window dressing and its application to Chinese mutual fund market," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 63-72.

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