The Study of the Momentum Effect and the Reversal Effect On the Chinese Stock Market--Based on the Data of Chinese A-Share Market

Abstract

Momentum and reversal investment strategy are based on cross trade mechanism, which was not available until Aril, 2010 in China. Since then, countless papers in this area have been benefited from a mass amount of data. Using the stock market data since April 2010, this paper sets focus on the existence of the momentum effect and reversal effect on Chinese stock market. From the empirical research results, we find that there exist the short-term momentum effect and the mid-term reversal effect on Chinese stock market. Based on the BSV model, this paper makes an effective explanation of the momentum and reversal effect on Chinese stock market. Key words: momentum effect; reverse effect; BSV model; HS model; Chinese A-share market IntroductionSince the 1990s, many scholars have done empirical researches on the momentum and reversal effect of the international capital market, most of which showed that reversal strategy and momentum strategy could get excess returns. For the domestic stock market, researches also demonstrated that the momentum effect and reversal effect exist. Base on the hypothesis that the short selling mechanism exists, much studies of the domestic market were pushed. However, until April 2010 when China came to do some margin trading and the stock index futures trading, short selling mechanism emerged in China. Therefore, this article contributes to exploration of existence of the momentum effect and reversal effect on Chinese stock market and tries to explain it after the presence of short-selling mechanism. The first time that the reversal effect on foreign securities market was found out was in 1985, De Bondt and Thaler 1 built the winner portfolio and loser portfolio using the

Industry momentum and trading volume: evidence from China

“…At the same time, it is important to explain that our conclusions are different from those of Wang et al (2006) and Deng et al (2021), who find that stocks with low volume have stronger momentum effects in China. We believe that this could be attributed to the fact that industry momentum is different from individual stock momentum.…”

“…It is notable that the conclusion is not widely accepted. For example, some studies find that low-volume stocks have stronger momentum effects than high-volume stocks in the Chinese stock market due to stock price manipulation (Wang et al, 2006;Deng et al, 2021). Stock price manipulation refers to the manipulator buying stocks at a low price to raise the stock price, while making the trading volume increase, and then selling the stock at a high price, resulting in the reversal of stock returns.…”

Sustainable Investing Based on Momentum Strategies in Emerging Stock Markets: A Case Study for Bombay Stock Exchange (BSE) of India

“…A variety of empirical research studies have been conducted on various emerging stock markets. Zeng and Liu (2016) provided an empirical study of the momentum effect and the reversal effect on the Chinese stock market based on Jegadeesh and Titman (1993) methods and concluded that there exist the short term momentum and mid-term reversal effect. Henker et al (2010) examined momentum effect in Australian equity market and concluded that there is no evidence for a consistent momentum effect in the Australian equity market since the late 1970s.…”