Taming the Factor Zoo: New Evidence from China

Table 11

Comparision of new factors in explaining anomalies. This table reports results of explaining 104 anomalies using augmented Liu–Stambaugh–Yuan 4-factor models [15]. The first column corresponds to our baseline result. We add seven new factors into the Liu–Stambaugh–Yuan 4-factor model one by one, including Quality-Minus-Junk, liquidity, cumulative abnormal returns around earnings’ announcement dates, Dimson beta, 4-quarter change in return on assets, and 4-quarter change in return on equity and idiosyncratic volatility per the FF3 model, in columns labeled “QMJ,” “AMI,” “abr,” “betad,” “droa,” “droe,” and “ivff.” The first two rows display GRS statistics proposed by Shanken et al. [24] and absolute average t-statistics of alphas over 104 anomalies. The last two rows display alpha estimates and corresponding t-statistics (in parentheses) of regressing PEAD and on augmented models. PEAD is the short horizon factor in the Daniel–Hirshleifer–Sun 3-factor model [22]. is the size factor in the Hou–Xue–Zhang q5-factor model [2].

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	LSY4	LSY4+
		QMJ	AMI	abr	betad	droa	droe	ivff
GRS	3.28	3.25	3.09	3.15	3.37	3.01	3.04	3.27
Average t	1	0.96	0.99	1.01	1.18	1.35	1.39	1.14
Alpha for PEAD	0.72%	0.21%	0.76%	0.41%	0.77%	0.41%	0.43%	0.77%
	−3.35	−3.15	−3.44	−2.33	−3.51	−1.95	−2.03	−3.63
Alpha for	0.19%	0.20%	0.17%	0.09%	0.23%	0.10%	0.09%	0.24%
	−1.9	−2	−1.64	−0.99	−2.22	−1	−0.91	−2.56