This paper studies the Level, Slope, and Curve factor model under different tests in the Chinese stock market. Empirical asset pricing tests reveal that the slope factor in the model represents either reversal or momentum effect for the Chinese stocks. Further tests on individual stocks demonstrate that the Level, Slope, and Curve model using effective predictor variables outperforms other common factor models, thus a filter in virtue of multiple hypothesis testing is designed to identify the effective predictor variables. In the filter models, the cross-section anomaly factors perform better than the time-series anomaly factors under different tests, and trading frictions, momentum, and growth categories are potential drivers of Chinese stock returns.

This paper finds that Chinese stocks rise in February instead of January. Further analysis shows that the February premium is attributed to the Chinese New Year. We propose an alternative explanation for this premium based on liquidity preference, i.e., investors prefer holding liquid assets before the holiday and illiquid assets after the holiday. We find a substantial decrease in monetary base and increase in market activity after the Chinese New Year. The empirical fact that the Chinese New Year effect is particularly strong for stocks with low institutional holdings also supports this hypothesis.

We examine a unique one day lockup constraint in stock markets in China and contribute to the understanding of impact of non-marketability on asset prices. Buyers of Chinese stocks are subject to a one day lockup and cannot sell their shares until the next day, but warrant traders are free of such restrictions. We demonstrate that the lockup creates a price discount relative to stock value implied by warrants. We show that the discount decreases throughout the trading day and that investors tend to purchase stocks when the lockup becomes less binding. The paper provides implications to value illiquid assets.

China's stock market (the "A share market'') has a lower correlation with the global market and is less affected by international financial contagions than any other major economy. The inclusion of mainland China stocks into an international portfolio increases its Sharpe ratio. However, we find that Chinese stocks providing the most diversification benefits also carry the most policy risk for international investors. Holding Chinese stocks listed in Hong Kong does not reap the same diversification benefits. While global market integration and the increase in foreign ownership can diminish diversification benefits, mainland China stocks still provide valuable diversification opportunities for international investors up till the most recent time in late 2010s.

We propose a new joint model of intraday returns and durations to study the dynamics of several Chinese stocks. We include IBM from the U.S. market for comparison purposes. Flexible innovation distributions are used for durations and returns, and the total variance of returns is decomposed into different volatility components associated with different transaction horizons. Our new model strongly dominates existing specifications in the literature. The conditional hazard functions are non-monotonic and there is strong evidence for different volatility components. Although diurnal patterns, volatility components, and market microstructure implications are similar across the markets, there are interesting differences. Durations for lightly traded Chinese stocks tend to carry more information than heavily traded stocks. Chinese investors usually have longer investment horizons, which may be explained by the specific trading rules in China.

We study whether firm name has an effect on firm valuation. Some Chinese firms listed on U.S. stock exchanges have the word "China" or "Chinese" included in their company names ("China-name stocks"), whereas others do not ("non-China-name stocks"). During the China stock market boom in 2007, we find that China-name stocks significantly outperform non-China-name stocks. This is not due to differences in firm characteristics, risk, or liquidity. We also find a significant increase in both abnormal returns and trading volumes of existing China-name stocks to the listing events of new Chinese initial public offerings. This "China-name effect" is largely consistent with the hypothesis that optimistic investor sentiment during the China stock market boom drives up China-name stocks more than non-China-name stocks.

While the vast majority of the literature reports momentum profitability to be overwhelming in the U.S. market and widespread in other countries, this paper finds that the pure momentum strategy in general does not yield excess profitability in the Chinese stock markets. We find instead strong mean reversion with an average half-life slightly shorter than one year. A pure contrarian investment strategy produces positive excess returns and in general outperforms the pure momentum strategy. Furthermore, momentum may interact with mean reversion. A strategy based on the rolling-regression parameter estimates of the model combining mean reversion and momentum generates both statistically and economically significant excess returns. The combined strategy outperforms both pure momentum and pure contrarian strategies. We conduct a number of robustness tests and confirm the basic findings. Collectively, our results seem to support the overreaction hypothesis.