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The Momentum and Contrarian Effect in China Stock Market

Author: WangZuo
Tutor: ZhongJianXin
School: Shanghai Jiaotong University
Course: Finance
Keywords: Momentum effect Contrarian effect Underreaction Overreaction Efficient market hypothesis
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 93
Quote: 0
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In this thesis, the author tested whether Momentum or Contrarian effect exist in China A stock market, using Jegadeesh and Titman methodology, constructing a zero-cost portfolio by buying winners and selling losers. Empirical study covers Shanghai Stock Exchange and Shenzhen stock exchange A share market, duration from 1999 to 2009. The result shows on weekly, monthly and yearly frequency, many contrariance strategies generate significant contrariance prodit, indicating contrarian effect do exist in China A stock market. And in a long term contrarian profit increase with time, however, in short and intermediate term, decrease gradually, showing a mean reversal motion. The significance of contrariance effect and its time varying characterristcs rejected that China A stock market complies to Weak form Efficient Market Hypothesis. As for the possible sources contributing to Momentum or Contrariance strategies, the author using the Lo and MacKinlay methodology, tests 4 popular explanations among academic studies. The auther found that in a short term, individual stock returns show a negative own-serial correlation, indicating investors in China A stock market are overreacting to information. In a size-related lead-lag effect empirical study, the author found that stock return among different size quantiles show negative cross corelations, meaning small size stock returns and lagged large size stock returns will go in an opposite direction. This explains in the long term, contrarian profit strengthens in China A stock market.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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