Zhenya Liu

Interdisciplinary seminars
finance seminar

Zhenya Liu

Renmin University
A mispricing factor in China stock market
Joint with
Bo Lia, Yuhao Mu
Venue

MEGA

MEGA

Maison de l'économie et de la gestion d'Aix
424 chemin du viaduc
13080 Aix-en-Provence

Date(s)
Tuesday, September 20 2022| 2:30pm
Contact(s)

Eric Girardin: eric.girardin[at]univ-amu.fr
Gaël Leboeuf: gael.leboeuf[at]univ-amu.fr
Christelle Lecourt: christelle.lecourt[at]univ-amu.fr

Abstract

By using the Instrumented Principal Component Analysis (IPCA), this paper has found four latent risk factors in China’s A-shares market. These are idiosyncratic volatility, bid-ask spread, short-term reversal, and turnover. Based on these four IPCA mispricing characteristics, we build a mispricing factor that measures the long-term effect of mispricing. Then, we propose a four-factor model that uses the mispricing factor in addition to the market, size, and profitability factors and does a better job of pricing 36 anomalies. The tangency portfolio of these four factors achieves an out-of-sample Sharp ratio of 2.44.