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A factor pricing model based on double moving average strategy

Economics

A factor pricing model based on double moving average strategy

Y. Chen, Y. Fang, et al.

This research introduces a groundbreaking six-factor asset pricing model tailored for the Chinese market, enhancing Liu et al.'s four-factor model with innovative moving average strategies. Conducted by YuZhi Chen, Yi Fang, XinYue Li, and Jian Wei, the findings reveal significant excess returns and robust performance across various economic conditions.

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Playback language: English
Abstract
This paper proposes a six-factor asset pricing model for the Chinese market by incorporating double moving average (MA) factors into Liu et al.'s (2019) four-factor model. The study finds that MA strategies using a 1-month short-term average with 3- and 12-month long-term averages yield significant excess returns. The augmented model exhibits improved pricing power, passing the GRS test at the 5% significance level and reducing the average absolute value of intercept terms by approximately 50%. The model's performance is robust across different macroeconomic states.
Publisher
Humanities and Social Sciences Communications
Published On
Nov 17, 2023
Authors
YuZhi Chen, Yi Fang, XinYue Li, Jian Wei
Tags
asset pricing model
Chinese market
moving averages
excess returns
macroeconomic states
four-factor model
investment strategies

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