Contrarian And Momentum Strategies In The China "A" Shares Stock Market

In the last couple of decades, financial academics and practitioners have recognized that average stock returns are related to past performance. Number of researchers report that past losers(negative or lowest return-stocks) outperform past winners(positive or highest return-stocks) or vice versa over the subsequent one to five years not only in US markets but also in other stock markets. This study examines the contrarian and momentum effects on stock returns in "A" shares of Shanghai and Shenzhen Stock Exchanges between years 1995 and 2003. Our findings indicate that: (1)statistically significant abnormal profits can be acquired for some short horizon contrarian strategies in Shanghai Stock Exchange; (2) however, neither contrarian nor momentum strategy is effective in Shenzhen Stock Exchange; (3)overreaction to firm-specific information is the important source of contrarian profits in Shanghai.