Context (archaeology)

Volatility (finance)

Stock (firearms)

Capital asset pricing model

Statistics

Stock market

Portfolio

China

Archaeology

Economics

Stock market bubble

Capitalization-weighted index

Value premium

Market portfolio

Mathematics

Geography

Value (mathematics)

Growth stock

Econometrics

Financial economics

Stock market index

International Review of Finance

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.

Fama–French in China: Size and Value Factors in Chinese Stock Returns