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The Study On Momentum Effect And Contrarian Effect Of Chinese Stock Market

Posted on:2007-07-23Degree:MasterType:Thesis
Country:ChinaCandidate:H ZhangFull Text:PDF
GTID:2189360182473699Subject:Technical Economics and Management
Abstract/Summary:PDF Full Text Request
Efficient Market Hypothesis believes that investors can't continuously get the excess returns, on the securities market, using certain interrelated information or certain analyzing model, viz. can't beat the market. However, there are lot of results of empirical research and observation show that there are great of abnormal returns which EMH and CAPM based on risk can not explain. Thereinto the"Time-series Predictability"of stock, i.e. the former stocks prices and returns can forecast the future those, is typical one of those abnormal phenomena, it includes"Self-correlation of short term stock return"(i.e. Momentum Effect) and"Negative correlation of long term stock return"(i.e. Contrarian Effect). Because they exist in almost all developed countries, they have been the focus of the finance field.The paper adopts the overlapping method, provided by Jegadeesh and Titman, to build the winner-loser portfolio, reviews the accumulative return ratio of different portfolio of A-stocks in the Shanghai Market during the period of 1998—2004, through a series of intensity check, to the greatest extent, to eliminate the influence of other abnormal phenomena to the momentum effect and the contrarian effect of the stock price and the data deal, and finds that A-stocks in the Shanghai market own obvious momentum effect in the middle and short term and obvious contrarian effect in long term.Further, the paper empirically studies the reason of the momentum effect and the contrarian effect in Chinese Securities Market through building the weighted relative strength strategy, also decomposes the excess returns and reviews the influence extent of interrelated factors. The paper finds that the most returns of the momentum strategy come from the positive self-correlation of the return ratio, further proves that there is under-reaction in short termChinese Securities Market, resulting in the phenomenon of"The stronger more stronger, The weaker more weaker"of the single stock, and the cross-correlation between stocks is not obvious. The paper also finds the time-series predictability can mostly explain the expect returns of the momentum effect and the contrarian effect.At last the paper analyzes the internal dynamical mechanism of the momentum effect and the contrarian effect in Chinese Securities Market based on the structure features of Chinese Securities Market and the psychology behavior model of the securities investors, and using the extended HS model further explains how the information distribution influences the investors, leading to the under-reaction in short term and over-reaction in middle and long term, further leading to the momentum effect and the contrarian effect. The paper also discusses the decision selection process of the uncompleted rational investors in the immature market, through building dynamic evolution game model of the stock traders.
Keywords/Search Tags:Momentum Effect, Contrarian Effect, Portfolio Strategy, Information Reaction
PDF Full Text Request
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