The Financial Econometrics Seminar: 
Time: 11:30 pm
Date: 17th of November 2022
Room 3001

Zhenya LIU (Renmin & Aix-Marseille) “A MISPRICING FACTOR, IPCA, AND CHINA A-SHARES MARKET”

Abstract : This paper has identified four significant characteristics related to mispricing in China’s A-shares market using the instrumented principal component analysis (IPCA), which are idiosyncratic volatility, bid-ask spread, short-term reversal, and turnover. Based on these four characteristics, we build a factor with a Sharpe ratio of 1.81 that measures the mispricing effect. We propose a four-factor model including the market, size, profitability, and our mispricing factors. In addition to explaining 36 anomaly portfolios in the literature more effectively, it also outperforms the majority of asset pricing factor models currently in use. The tangency portfolio of these four factors achieves an out-of-sample Sharpe ratio of 2.42.

Joint work : with Bo LI and Yuhao MU.

Organizers:

Jean-Michel ZAKOIAN  (CREST)

Sponsors:
CREST