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The LSC model’s superior performance beyond traditional factors in China’s stock market

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  • Nengsheng Fang
  • Peixi Miao

Abstract

This study applies the Level, Slope, and Curve (LSC) factor model to address the complexity of the ‘factor zoo’ phenomenon within China’s stock market. Empirical evidence reveals that the slope factor of the model significantly captures the reversal or momentum effects in Chinese stocks. The LSC model, especially when integrated with effective predictors, exhibits superior performance compared to traditional factor models. We introduce a filter based on multiple hypothesis testing to identify crucial predictors. It is found that cross-sectional factors, particularly those related to trading friction, momentum, and growth, are significant drivers of stock returns in China. Based on these results, we put forward targeted recommendations with the aim of optimizing policy formulation and investment strategies within the Chinese financial ecosystem.

Suggested Citation

  • Nengsheng Fang & Peixi Miao, 2026. "The LSC model’s superior performance beyond traditional factors in China’s stock market," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 24(1), pages 105-126, January.
    • Handle: RePEc:taf:jocebs:v:24:y:2026:i:1:p:105-126
    DOI: 10.1080/14765284.2025.2506215
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