The 52-week Low Anomaly And Its Interpretation Of Multiple Factors Model

The US stock market and other major global stock markets have verified the existence of price anomalies such as the 52-week high price(Price To High)to varying degrees.The Chinese stock market also provides experimental samples for studying the impact of historical stock prices on future cross-sectional stock returns.True,every stock market has its own characteristics.But since there are certain price anomalies in other stock markets,will there be similar price anomalies in China's stock market? The starting point of this article is based on this consideration.This paper studies the 52-week low price(Price To Low)effect of the A-share market in China through empirical analysis.The 52-week low price effect is such a phenomenon: if the historical 52-week(one-year)average stock price of a stock is closer to its previous 52-week lowest price,the stock's return will be higher.This effect can be seen as a reversal effect or as a similar effect for the low-priced stock effect.At present,most of the traditional empirical methods use Fama-French model to explain the anomaly,but this article is different.This article introduces q-factor model which is based on the q theory and investment capital asset pricing model.Furthermore,at the foundation of q-factor model and relevant literature,the model was appropriately adjusted,.The 52-week low price effect was explained well using the adjusted model.Therefore,this article is also innovative in foundamental theory and empirical methods.As for the research results,the research in this article uses the multi-factor model to explain 52-week low price effect,which is the first time to explain the 52-week low price effect in this way,so to some extent it has advances..This article uses all A-share(excluding financial companies)listed companies from 1998 to 2017 as a sample.First,it is verified whether there is a 52-week low price effect in the Chinese A-share market.Second,it combines the traditional Fama-French factor model and Professor Zhang's q-factor model,and according to the characteristics of the Chinese stock market,the above model is improved to better fit the factor return characteristics of the Chinese stock market.We selected a total of 5 indicators(market factor MKT,market value factor ME,profitability factor EP,investment factor I / A,profitability factor ROE factor)as the explanatory variables,and used a zero-leverage arbitrage portfolio(short selling high PTL portfolio and buying Into the low PTL portfolio)as the dependent variable to build a multi-factor regression model,hoping to using the selected explanatory factor to explain the 52-week low price effect.This article verifies the existence of the "52-week low price effect",and a reasonable explanation is given from the perspective of the multi-factor model.The research results show that:(1)The stock return rate of the company closest to the lowest price in the past 52 weeks will be significantly higher than the stock return rate of the company that is farthest from the 52 week low.The zero-leverage arbitrage combination of the two(shorting the high PTL combination and buying the low PTL combination)can obtain significant excess returns.(2)In the case that the traditional Fama-French three-factor,Carhart four-factor,and five-factor Fama-French models failed to explain the 52-week low price anomaly,this paper combines the traditional Fama-French factor model and Professor Zhang's q-factor model.According to the characteristics of the Chinese stock market,a new factor combination model is constructed,which explains the anomaly of excess returns in the result(1).In addition,this article verifies the relationship between the 52-week low price(PTL)and the explanatory factors(profit factor F?EP,investment factor F?I / A)in future periods to better explain why the 52-week low price can cause a significant excess return.If the 52-week low price(PTL)is significantly positively correlated with the EP index in future periods,and is significantly positively correlated with the investment factor I / A in future periods,it means that when the 52-week low price(PTL)is smaller,the stronger the company's future profitability,the faster the investment growth rate,resulting in higher stock returns in the future.The research results also confirm our hypothesis,which better explains why the 52-week low price can produce a significant excess return.