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Empirical Evidence Of Stock Price Momentum In China

Posted on:2005-07-10Degree:MasterType:Thesis
Country:ChinaCandidate:L Y ChenFull Text:PDF
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Price momentum means that stocks with high returns in the past will outperform stocks with low former returns in the future. Related literature reveals that price momentum is an anomaly. Researches on price momentum are helpful to find rules of the changes of stock prices, to explore reasons of the changes of stock prices, and to find profitable investment strategies. Furthermore, Researches on price momentum are also helpful to judge efficiency of stock market. In this paper, we concentrate on price momentum in China.We use weekly returns of "A" stocks that listed on Shanghai Security Exchange as our sample, and the sample period is from 1999 to 2002. Through our empirical research, we find that price momentum is weak in China, it can only be found in short term, and the profit of momentum strategies only comes from buying winners. We also do some robust tests to exclude the effects of other anomalies and the probability of data mining. These robust tests confirm our finding of price momentum in China. On the base of empirical research, we investigate the practicality of momentum strategies in China, and we find that the strategies of "buying winners" are profitable.Moreover, we try to find reasons of price momentum through empirical research. According to existed literature, no Chinese scholars have done empirical research on reasons of price momentum. What we do in this paper is a breakthrough in research method and research depth. Firstly, we use Fama-French three factors model to adjust risk of portfolios under efficient market hypothesis. However, winner portfolios and momentum portfolios still can get abnormal returns after risk adjustment. It means that differences on portfolios' risk can't explain the reasons of price momentum. Then, we turn to behavioral finance. Existed models on behavioral finance can explain reasons of price momentum theoretically. Our empirical research confirms that investors' overreaction to information is the reason of price momentum in China's stock market, however, we refused the hypothesis that overconfidence cause overreaction and then cause price momentum.
Keywords/Search Tags:Price Momentum, Momentum Strategies, Anomalies, Behavioral Finance
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