Empirical tests of the float-adjusted return model

This paper implements empirical tests of the recently proposed float-adjusted return model by using Chinese stock-market data. The results show that variation in free float can explain cross-sectional variation in asset returns by about 6.7% annually, after we control for market risk, size, and book-to-market equity. In addition, we also find that size and book-to-market equity help explain cross-sectional variations in returns even after controlling for free float.