Beijing, August 4, 2025 — Cheung Kong Graduate School of Business (CKGSB) is pleased to announce that Professor of Finance Li Xuenan (Erica), as the lead author, has published a major research paper, “Fundamental Anomalies,” in Management Science, one of the world’s leading academic journals in management and finance.
Unlike traditional methods that require tuning parameters for specific asset pricing anomalies, this paper introduces a novel, portfolio-independent approach based on Bayesian Markov Chain Monte Carlo (MCMC) to estimate the performance of any given model in explaining anomalies using the entire sample of firm-level U.S. stock returns (1967–2017), while accounting for time and industry variation. “By targeting the entire sample of firm-level returns and allowing industry and time variations in parameter values, our estimations yield higher correlations between realized and fundamental portfolio returns compared with prior literature,” explains Professor Li.
By comparing the new method with traditional techniques such as Generalized Method of Moments (GMM) and Nonlinear Least Squares (NLS), the model explains several key return anomalies, like size, momentum, profitability, and investment, although it still struggles with value and accruals anomalies—highlighting the importance of unbiased, model-agnostic testing in financial theory.
This research represents a significant step forward in the field of empirical asset pricing and offers promising applications for investment strategies, risk evaluation, and regulatory analysis.
Professor Li collaborated with Dr. Guoliang Ma (Xiamen University), Professor Shujing Wang (Tongji University), and Professor Cindy Yu (Iowa State University) on this paper.
Professor Li is a tenured Professor of Finance at CKGSB and Director of the Center for Chinese Industrial Policy. She holds PhDs in Finance (University of Rochester) and Physics (University of Massachusetts), and previously taught at the Ross School of Business, University of Michigan. Her work has appeared in Review of Financial Studies, Journal of Financial Economics, Journal of Monetary Economics, and now Management Science. She serves as associate editor for several top-tier journals and has twice received CKGSB’s Distinguished Research Award.
