Size and value in China

By Jianan Liu, Rob Stambaugh, Yu Yuan. Journal of Financial Economics, 2019

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We construct size and value factors in China. The size factor excludes the smallest 30% of firms, which are companies valued significantly as potential shells in reverse mergers that circumvent tight IPO constraints. The value factor is based on the earnings-price ratio, which subsumes the book-to-market ratio in capturing all Chinese value effects. Our three-factor model strongly dominates a model formed by just replicating the Fama and French (1993) procedure in China. Unlike that model, which leaves a 17% annual alpha on the earnings-price factor, our model explains most reported Chinese anomalies, including profitability and volatility anomalies.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/6742c5015e9a9cad908177d2fc6420e255afc9ff