Momentum returns, market states, and market dynamics: Is China different?

Cheema, Muhammad A.; Nartea, Gilbert V.

doi:10.1016/j.iref.2017.04.003

Cited by 46 publications

(33 citation statements)

References 40 publications

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“…Conditioning momentum returns on market dynamics, we confirm the earlier results reported in Cheema and Nartea (2017) that momentum returns in China exclusively follow DOWN market states especially when the market continues in the DOWN state.…”

Section: Accepted Manuscriptsupporting

confidence: 89%

“…Meanwhile Cheema and Nartea (2017) also find that momentum returns in China are stronger when markets continue in the same state than when they transition to a different state but only when markets continue in the DOWN state. In fact they find that momentum returns in China exclusively follow DOWN market states.…”

Section: Introductionmentioning

confidence: 82%

“…In a recent study, Cheema and Nartea (2017) Daniel et al (1998) but not the underreaction model of Hong and Stein (1999).…”

Section: Momentum Returns Conditioned On Market Dynamics and IVmentioning

confidence: 89%

“…First, we replicate their results with a slightly longer sample period. FollowingCheema and Nartea (2017) and Asem and Tian (2010), we classify market states based on lagged 12-month and subsequent value-weighted market returns. If the lagged 12-month (t-11 to t) and subsequent (t+1 month) market return are both nonnegative (negative) then the market state is identified as UP/UP (DN/DN).…”

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confidence: 99%

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Momentum, idiosyncratic volatility and market dynamics: Evidence from China

Cheema

Nartea

2017

Pacific-Basin Finance Journal

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Recent evidence on the relation between momentum and idiosyncratic volatility (IV) in the U.S. is mixed. We verify the relation between momentum and IV in China and find at best, no relation supporting the view that idiosyncratic risk is not a significant arbitrage cost for momentum returns. While the absence of a positive relation between momentum returns and IV rejects both the underreaction and the overconfidence and self-attribution stories of momentum, we find support for the overconfidence and self-attribution story from our results on market dynamics and momentum. Our results are robust when verified in other Asian markets. We also find support for the suggestion that crosscountry differences in momentum returns could be the result of differences in market dynamics rather than differences in levels of individualism as suggested earlier in the literature.

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Section: Accepted Manuscriptsupporting

confidence: 89%

Section: Introductionmentioning

confidence: 82%

“…In a recent study, Cheema and Nartea (2017) Daniel et al (1998) but not the underreaction model of Hong and Stein (1999).…”

Section: Momentum Returns Conditioned On Market Dynamics and IVmentioning

confidence: 89%

mentioning

confidence: 99%

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Momentum, idiosyncratic volatility and market dynamics: Evidence from China

Cheema

Nartea

2017

Pacific-Basin Finance Journal

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“…For example, alpha of net stock issues, composite equity, net operating assets, gross profitability, asset growth, and return on assets is consistent with Jacobs (2016). 8 The long-short return of the momentum strategy is similar to the ones reported in Chui et al (2010) and Cheema and Nartea (2017).…”

Section: Anomaly Returnssupporting

confidence: 71%

Oil prices and stock market anomalies

Cheema

Scrimgeour

2019

Energy Economics

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This paper examines the relationship between oil prices and stock market anomalies in China, the largest oil importer country in the world. Prior literature documents both a positive and negative relationship between oil prices and the stock market. The explanation of a positive relationship is supported by the argument that rising oil prices are interpreted as a positive signal by investors. Consequently, rising oil prices lead stock prices above their fundamental values and that they subsequently correct. Therefore, we hypothesise that stock market anomalies are stronger following rising oil prices since returns associated with anomalies reflect mispricing. The results, consistent with the hypothesis, show stronger return predictability for individual anomalies following an increase in oil prices than for a decrease in oil prices. The results are even stronger once we construct a mispricing score based on composite mispricing of all the anomalies. JEL Classification Code: G14, G15, Q43

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Relationship between investor sentiment and earnings news in high‐ and low‐sentiment periods

Tian

Ouyang

et al. 2020

Int. J Fin Econ

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Using the Chinese equity market as the testing venue, this study explores how investor sentiment affects the immediate reaction of stock prices to earnings news in high‐ and low‐sentiment periods. Our key finding is that the sentiment‐driven pricing of earnings will differ between the two periods. Specifically, during high‐sentiment (low‐sentiment) periods, the stock price sensitivity to good (bad) earnings news increases (decreases) with investor sentiment, whereas the stock price sensitivity to bad (good) earnings news is unrelated to investor sentiment. Additionally, we find that the effect of sentiment is more pronounced for young, high volatility, growth and distressed stocks. However, contrary to the U.S. evidence, our results show that small stocks are not always more exposed to sentiment. Further analysis of the role of short‐sales constraints in the sensitivity of stock prices to bad earnings news implies that short sales can enhance informational efficiency.

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Momentum returns, market states, and market dynamics: Is China different?

Cited by 46 publications

References 40 publications

Momentum, idiosyncratic volatility and market dynamics: Evidence from China

Momentum, idiosyncratic volatility and market dynamics: Evidence from China

Oil prices and stock market anomalies

Relationship between investor sentiment and earnings news in high‐ and low‐sentiment periods

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