Study Of Industry Momentum Strategy In Chinese Stock Market

Efficient Market Hypothesis (EMH) is the basis of modern finance, which classifies efficient market into three degrees: weak form, semi-strong form and strong form. The success of EMH is primarily attributed to the strict hypothesizes and empirical affirmation. However, EMH is also doubtable simultaneously. The doubt comes from two sources in the same way. Common sense and psychology experiments tell us people are not absolute rational, whose psychology and behavior is different from rationality and business behavior is not random. Arbitrage mechanism will not work frictionlessly. Furthermore, many anomalies from capital market strengthen investors'suspicion of EMH.With the bounded rationality of human and the anomalies of capital market behavioral finance develops gradually, which acknowledges the limited rationality of human and face the real market. Behavioral finance probes the function of the psychology and behavior biases, thereby turning to the research of reality from ideality. Momentum is an important anomaly of capital market that has been comprehensive discussed. Foreign literature gives momentum much attention, but the researches of this phenomenon in China appeared only a few years ago and they are not deep enough, especially, only few has discussed the industry momentum.This paper studies Chinese stock market and documents a short-term industry momentum effect over the 1-to 8-week horizon. The dates are sourced from the CSMAR database containing daily observations on prices, market returns and so on for the period from 1995 to 2003. In order to research the effectiveness of industry momentum and the psychology and behavior of human in different environment, this paper studies the sample by dividing it into two periods. Though the industry momentum effect is also present in both periods, we find much difference in the two periods and we include that investors is sensitive to the status of stock market.For expanding our knowledge of industry momentum, we compare it with individual momentum and intra-industry momentum. The result points out that there are some differences in the return pattern between industry momentum and individual momentum, which indicates there maybe existing some relation between them, but a Paired Samples Test of whether the two means are different is not rejected. The relation of industry momentum and individual momentum should be studied by the future...