Paper: arXiv 2601.06499

Authors: Jin Du, Alexander Walter, Maxim Ulrich

Abstract

Current asset pricing research exhibits a significant gap: a lack of sufficient cross-market validation regarding short-term trading-based factors. Against this backdrop, the development of the Chinese A-share market which is characterized by its retail-investor dominance, policy sensitivity, and high-frequency active trading – has given rise to specific short-term trading-based factors. This study systematically examines the universality of factors from the Alpha191 library in the U.S. market, addressing the challenge of high-dimensional factor screening through the double-selection LASSO algorithm an established method for cross-market, high-dimensional research. After controlling for 151 fundamental factors from the U.S. equity factor zoo, 17 Alpha191 factors selected by this procedure exhibit significant incremental explanatory power for the cross-section of U.S. stock returns at the 5% level. Together these findings demonstrate that short-term trading-based factors, originating from the unique structure of the Chinese A-share market, provide incremental information not captured by existing mainstream pricing models, thereby enhancing the explanation of cross-sectional return differences.

Complexity vs Empirical Score

  • Math Complexity: 6.5/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: This paper presents a strong empirical framework applying double-selection LASSO to test short-term Chinese trading factors (Alpha191) against an established US factor zoo. The methodology is statistically sound and addresses omitted variable bias rigorously, offering valuable cross-market alpha insights.

Research Flowchart

  flowchart TD
    A[Research Goal: Validate Chinese Short-Term Alpha191 Factors in U.S. Market] --> B[Data Inputs: Alpha191 Factors + 151 U.S. Fundamental Control Factors]
    B --> C[Double-Selection LASSO Algorithm]
    C --> D[High-Dimensional Factor Screening & Control]
    D --> E[Outcome: 17 Alpha191 Factors Retained at 5% Significance Level]
    E --> F[Conclusion: Chinese Trading Factors Offer Incremental Alpha Beyond U.S. Factor Zoo]

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