The state of the market and the contrarian strategy: evidence from China's stock market

Qiwei Chen, Ying Jiang, Yuan Li

Research output: Journal PublicationArticlepeer-review

14 Citations (Scopus)


Using the most comprehensive weekly dataset of 'A' shares listed on the Chinese stock market, this paper examines short-term contrarian strategies under different market states from 1995-2010. We find statistically significant profits from contrarian strategies, especially during the period after 2007, when China (along with other countries) experienced an economic downturn following the worldwide financial crisis. Our empirical evidence suggests that: (1) no significant profit is generated from either momentum or contrarian strategies in the intermediate horizon; (2) after microstructure effects are adjusted for, contrarian strategies with only four to eight weeks holding periods based on the stocks' previous four to eight week's performance generate statistically significant profits of around 0.2% per week; (3) the contrarian strategy following a 'down' market generates higher profit than those following an 'up' market, suggesting that a contrarian strategy could be used as a shelter when the market is in decline. The profits following a 'down' market are robust after risk adjustment.

Original languageEnglish
Pages (from-to)89-108
Number of pages20
JournalJournal of Chinese Economic and Business Studies
Issue number1
Publication statusPublished - Feb 2012


  • China stock market
  • common factor
  • contrarian and momentum
  • market states
  • overreaction

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (all)


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