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

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Listed:
  • Chen, Shan
  • Liu, Xujun
  • Li, Tao

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.

Suggested Citation

  • Chen, Shan & Liu, Xujun & Li, Tao, 2023. "Does the investment-profitability correlation affect the factor premiums? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000781
    DOI: 10.1016/j.pacfin.2023.102012
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    More about this item

    Keywords

    Cross-section of stock returns; Investment premium; Profitability premium; Chinese market;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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