Abstract
We evaluate the ability of the asset pricing models of Liu, Stambaugh and Yuan (2019) and Fama and French (2018) to price Chinese stocks. Our model comparisons are conducted using spanning tests following Barillas and Shanken (2017) and maximum squared Sharpe ratios following Barillas, Kan, Robotti and Shanken (2020). We will first examine the models of Liu et al. (2019) and Fama and French (2018) in isolation. Next, we will conduct horse race tests between the models. The superior model will be determined based on spanning regressions and a comparison of the maximum squared Sharpe ratios derived from the model's factors.
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