The Research On The Trading Behavior Of Chinese Security Investment Funds Based On Momentum

One of the most significant discoveries in contemporary financial research is stock return predictability, which indicates that the information contained in past returns of stocks can help to predict their future returns. Stock return predictability is mainly reflected in the momentum effect and contrarian effect, which, as an anomaly in stock market, cannot be explained by CAPM and Fama-French Three Factor Model and are inconsistent with Efficient Market Hypothesis (EMH). This discovery not only makes the theoretical foundation of modern financial economics shaky, but also generates potential arbitrage opportunities.Given the theoretical and practical significance of momentum effect and the behavioral study thereof, it is necessary for scholars, administrators and investors to stay abreast of the cutting-edge research on momentum trading. China's fund market, as the youngest one on the stock market, has experienced unprecedented development since its establishment in 1998, and therefore can be regarded as a representative of the newly emerged markets. Research on this market will enrich and further develop the previous research on momentum and contrarian effect obtained from the US stock market.In order to achieve the above purposes, this paper takes a different approach which focus on a systematic study of the investment behavior of the security investment funds in China.This paper is divided into seven chapters. First, I have reviewed the literature on momentum effect and momentum investment behavior, raise the question on theoretical and empirical background, and then propose the research roadmap of this paper. Secondly, the author investigates and compares different theories and models related to momentum effect, momentum trading behavior and sources of momentum returns and propose the theoretical foundations of this paper. Then this paper improves and creates a new theoretical model based on the momentum effect research model proposed by Jegadeesh and Titman, and the positive momentum trading model proposed by Shiller, Sentana and Wadhwani. Based on this new theoretical model and using the real data of Chinese security market, this paper conducts empirical research on the momentum investment behavior of Chinese security investment funds. Lastly, this paper combines the momentum effect and momentum trading behavior in an effort to investigate the sources of momentum return. From the perspective of principal-agent relations and the market impact of fund managers as institutional investors, the author tries to provide new theoretical explanations for the source of momentum return, which is a highly controversial topic.The overall structure of this paper is coherent and all the sections of it are interrelated. The research findings show that the stocks heavily held by security investment funds have exhibited significant momentum effect and that the idiosyncratic momentum effects are more significant and last longer than relative momentum return. However, fund managers tend to over-react to relative momentum return while under-react to idiosyncratic momentum return.Chinese fund managers tend to adopt momentum trading strategy especially when the stock market volatility rises, therefore stock returns exhibit first-order negative autocorrelation. By showing that fund managers' momentum trading behavior generates the momentum return of stocks, this paper investigates the source of momentum return from a new and innovative theoretical perspective.