An Adjusted Factor Model Based on China’s Stock Market
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2021-07-26
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en
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Abstract
In this paper, I use the government ownership to build an adjusted factor
model for stocks in China’s stock market. Two methods are used to build
the government ownership factor. The empirical results show that the
adjusted five-factor model with government ownership factor improves
the FF-3 and Carhart-4 model slightly. Also, the two factors cannot be
explained by the factors in FF-3 and Carhart-4 models, separately or
together, while these two factors can explain some factors in FF-3 and
Carhart-4 models in return. The GRS test gives further evidence that the
government ownership factor in China can explain Carhart-4 factors to
some extent. Also, the factor models with government ownership factor
improve the explanatory power of profitability and investment anomalies.
Finally, two robustness checks are taken. This paper shows that the
government ownership factor is an effective factor in China’s stock
market, and the adjusted factor model with government ownership factor
improves the explanatory power of the Carhart-4 model.
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Faculteit der Managementwetenschappen