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A Research On Stock Markets' Momentum Effect And Contrarian Effect In Stock Market

Posted on:2007-09-18Degree:MasterType:Thesis
Country:ChinaCandidate:Z ChenFull Text:PDF
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According to the hypothesis of weak-form market efficiency ,it is impossible for the investor to gain abnormal return by making use of out-dated price information .However ,the discovery of momentum effect and contrarian effect poses great challenge to the above hypothesis .The investor may gain abnormal return by purchasing stocks which are promising at the prophase while selling stocks with poor performance ,based on momentum effect ,or by selling stocks with good performance ,based on the contrarian effect .This thesis, with reference to foreign research methodology, examines the momentum and contrarian effects in bull market (from June, 1997 to June, 2001) and in bear market (from June, 2001 to June, 2005) respectively on a weekly basis. The author finds that, in the bull market the winner portfolio has a positive momentum effect, while the loser portfolio has a contrarian effect. Such phenomenon corresponds with the tendency of bull market. However, there are some instable results in the loser portfolio, and the returns gained by the winner portfolio are far more than those of loser portfolio. Therefore we may conclude that in the bull market the momentum effect dominates. On the other hand, during the period from June, 2001 to June, 2005 in the bear market, return contrarian exists in winner portfolio. Returns for all the winner portfolio in Shenzhen and Shanghai stock exchanges are without exception negative. Moreover, most statistics show that contrarian effect appears. The abnormal returns for the loser portfolio are also negative, showing the existence of a negative momentum effect. Furthermore, the performance of the winner portfolio is worse than that of loser portfolio. Thus we conclude that contrarian effect dominates in the bear market, and the investment strategy of sell winner portfolio will gain the maximum returns.Based on the empirical results, two experiments are set in the thesis, with the purpose of explaining the momentum effect and contrarian effect from the angle of investors'psychology. Further analysis has also been carried out within the framework of BHS and BSV models.
Keywords/Search Tags:momentum effect, contrarian effect, winner portfolio, loser portfolio, abnormal return
PDF Full Text Request
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