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Which is the better fourth factor in China? Reversal or turnover?

Author

Listed:
  • Lin, Hung-Wen
  • Huang, Jing-Bo
  • Lin, Kun-Ben
  • Zhang, Joyce
  • Chen, Shu-Heng
Abstract
We conduct contests between the reversal factor and turnover factor in explaining excess returns, return spreads and negative momentum profits in the Chinese stock market. Our findings indicate that the reversal factor does a better job than the turnover factor in explaining return spreads and negative momentum profits from both the cross-section and time-series perspectives. In addition, the reversal factor is better than the turnover factor when discussing excess returns from the cross-section perspective. By contrast, regardless of whether the time-series turnover factor or the cross-section turnover factor is considered, they are both characterized by insignificant slopes in a factor model facing return spreads, which suggests that there are actually notable underlying shortcomings behind the turnover factor. Overall, our work implies that the reversal factor is a better fourth factor in the Chinese stock market.

Suggested Citation

  • Lin, Hung-Wen & Huang, Jing-Bo & Lin, Kun-Ben & Zhang, Joyce & Chen, Shu-Heng, 2020. "Which is the better fourth factor in China? Reversal or turnover?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x2030113x
    DOI: 10.1016/j.pacfin.2020.101347
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    More about this item

    Keywords

    Asset pricing; Factor models; Price reversal; Cross-section factor;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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