Stock Return Asymmetry in China

Abstract

In this paper, we find that the upside asymmetry calculated based on a new distribution-based asymmetry measure proposed by Jiang, Wu, Zhou, and Zhu (2020) is negatively related to average future returns in the crosssection of Chinese stock returns. By contrast, when using a conventional skewness measure, the relationship between asymmetry and average returns is unclear. Furthermore, the asymmetry factor constructed from the new asymmetry measure cannot be explained by the three-factor (CH-3) and four-factor (CH-4) models proposed by Liu, Stambaugh, and Yuan (2019). When augmenting the CH-3 model with our asymmetry factor, the new four-factor model is able to explain 33 anomalies out of a universe of 37 significant anomalies in the Chinese stock market.