Evaluating Factor Models in China
Apr 21, 2023
Today, we will evaluate some specifics that are akin to the now second largest market in the world — China. The abundance of “shell companies” creates a problem when researchers try to uncover sources of alpha in the Chinese market. We present recent research of Zhiyong Li and Xiao Rao (2022) that proposes new alternative filter, which excludes the stocks with a high estimated shell probability when constructing equity factor models.
