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Trend Factor in China: The Role of Large Individual Trading

Last Updated on 10 February, 2024 by Rejaul Karim

In the scholarly work titled “Trend Factor in China: The Role of Large Individual Trading,” authors Yang Liu, Guofu Zhou, and Yingzi Zhu introduce an innovative trend factor for the Chinese stock market. This unique trend factor combines both price and volume information to capture dominant individual trading, momentum, and liquidity.

The study reveals that volume bears greater significance for China’s trend factor compared to the US, reflecting the higher retail participation in the Chinese market. By integrating this trend factor into Liu et al.’s (2019) 3-factor model, the authors propose a comprehensive 4-factor model explaining a wide array of stylized facts and 60 representative anomalies.

This research underscores the crucial role of individual trading in asset pricing, specifically in the context of the Chinese stock market, opening new avenues for understanding and analysis.

Abstract Of Paper

We propose a novel trend factor for the Chinese stock market, which incorporates both price and volume information to capture dominant individual trading, momentum, and liquidity. We find that volume plays a more significant role in the trend factor for China than for the US, reflecting the greater retail participation in China. By incorporating this trend factor into the 3-factor model of Liu et al. (2019), we propose a 4-factor model that explains a wide range of stylized facts and 60 representative anomalies. Our study highlights the important role of individual trading in asset pricing, especially in China.

Original paper – Download PDF

Here you can download the PDF and original paper of Trend Factor in China: The Role of Large Individual Trading.

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Author

Yang Liu
Hunan University – College of Finance and Statistics

Guofu Zhou
Washington University in St. Louis – John M. Olin Business School

Yingzi Zhu
Tsinghua University – School of Economics & Management

Conclusion

In conclusion, the research paper offers valuable insights into the implications of individual trading in the Chinese stock market. The authors present a pioneering trend factor that fuses price and volume data to capture dominant individual trading, momentum, and liquidity, highlighting the importance of volume in China compared to the US.

By seamlessly integrating this trend factor into the existing 3-factor model, a comprehensive 4-factor model emerges, successfully elucidating a wide spectrum of stylized facts and 60 representative anomalies.

This cutting-edge study emphasizes the pivotal role individual trading plays in asset pricing, particularly within the Chinese market, paving the way for future research and development in this dynamic field.

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FAQ:

Q1: What is the main focus of the research paper “Trend Factor in China,” and what makes its approach unique?

The research paper focuses on introducing a novel trend factor for the Chinese stock market, incorporating both price and volume information to capture dominant individual trading, momentum, and liquidity. The uniqueness lies in its emphasis on the role of individual trading in asset pricing, especially in the context of the Chinese market.

Q2: How does the research differentiate the significance of volume in the trend factor for China compared to the US, and what model does it propose based on its findings?

The study reveals that volume plays a more significant role in China’s trend factor compared to the US, reflecting higher retail participation in the Chinese market. The authors propose a comprehensive 4-factor model by integrating this trend factor into the existing 3-factor model of Liu et al. (2019). This model successfully explains a wide range of stylized facts and 60 representative anomalies.

Q3: What are the key takeaways from the research regarding the role of individual trading in asset pricing, and how does it contribute to future understanding and analysis of the Chinese stock market?

The research underscores the crucial role of individual trading in asset pricing, specifically within the Chinese stock market. By presenting a pioneering trend factor and integrating it into a comprehensive model, the study opens new avenues for understanding and analyzing the implications of individual trading. The findings emphasize the importance of volume in China and pave the way for future research and development in this dynamic field.

You can find many more Research Papers here

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