Momentum or contrarian trading strategy: Which one works better in the Chinese stock market

Lin Yu, Hung Gay Fung, Wai Kin Leung

Research output: Journal PublicationArticlepeer-review

17 Citations (Scopus)

Abstract

This study investigates short-horizon momentum-reversal patterns in Chinese stock markets since 2010, when investors were first permitted to engage in short sales of stocks. We use weekly returns of winner-minus-loser portfolios for stocks on the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the SZSE Growth Enterprise Market (GEM) to examine the profitability of the trading strategy. Weekly stock return reversals are observed and significant across the three markets, while returns appear to increase if the sorting period is extended or the holding period is shortened. The return-reversal effect in the GEM is the strongest but also disappears most quickly. A momentum pattern of winner-minus-loser portfolios for low-turnover-ratio firms is also observed across the three Chinese markets and the return-reversal pattern is prevalent for high-turnover-ratio firms.

Original languageEnglish
Pages (from-to)87-105
Number of pages19
JournalInternational Review of Economics and Finance
Volume62
DOIs
Publication statusPublished - Jul 2019

Keywords

  • Chinese stock market
  • G11
  • G12
  • G15
  • Individual investors
  • Momentum and reversal patterns

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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