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Fama–French in China: Size and Value Factors in Chinese Stock Returns
Author(s) -
Hu Grace Xing,
Chen Can,
Shao Yuan,
Wang Jiang
Publication year - 2019
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12177
Subject(s) - econometrics , economics , volatility (finance) , portfolio , value premium , stock (firearms) , growth stock , financial economics , china , value (mathematics) , stock market , capitalization weighted index , mathematics , capital asset pricing model , stock market index , statistics , stock market bubble , geography , context (archaeology) , archaeology
Abstract We investigate the size and value factors in the cross‐section of returns for the Chinese stock market. We find a significant size effect but no robust value effect. A zero‐cost small‐minus‐big (SMB) portfolio earns an average premium of 0.61% per month, which is statistically significant with a t ‐value of 2.89 and economically important. In contrast, neither the market portfolio nor the zero‐cost high‐minus‐low (HML) portfolio has average premiums that are statistically different from zero. In both time‐series regressions and Fama–MacBeth cross‐sectional tests, SMB represents the strongest factor in explaining the cross‐section of Chinese stock returns. Our results contradict several existing studies which document a value effect. We show that this difference comes from the extreme values in a few months in the early years of the market with a small number of stocks and high volatility. Their impact becomes insignificant with a longer sample and proper volatility adjustment.