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Constructing a Multifactor Model for the Shanghai Stock Exchange

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  • Hsin-Hung Chen
  • Kuang-Ping Ku
  • Hsiu-Yu Lee

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.

Suggested Citation

  • Hsin-Hung Chen & Kuang-Ping Ku & Hsiu-Yu Lee, 2015. "Constructing a Multifactor Model for the Shanghai Stock Exchange," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S4), pages 51-67, July.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s4:p:s51-s67
    DOI: 10.1080/1540496X.2015.1026720
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