A Study Of Contrarian And Momentum Effect In Chinese Futures Markets

After more than a decade's experience, the Chinese futures markets have been on the way of quick and healthy development. The efficiency of market operation and technical analysis in Chinese futures markets draws much attention of many scholars. Basing on the contrarian strategies, this paper analyses the contrarian and momentum effects, and explores the reasons, and further makes a systematic study using behavioral finance. Besides, this paper studies the effects of the trading activity variables (including trading volume and open interest) to contrarian and momentum return.Chapter 1 is the introduction of this paper. In this section I provide the backgrounds and value of this research, and also provide the methods and thinking of the study.Chapter 2 is literature summarization, which includes studies on the market efficiency (EMH), challenges to EMH, investor irrationality, and the theory and empirical studies to contrarian and momentum effects.Chapter 3 is theoretical models, including BSV model (Barberis et al, 1998), DHS model (Daniel et al, 1998), HS model (Hong and Stein, 1999) and positive feedback model (De Long et al, 1990). Basing on theoretical hypothesis and the characteristic of investor behavior in Chinese futures markets, this paper further analyses the theoretical basis for contrarian and momentum effects in Chinese futures markets.Chapter 4 is empirical research, basing on data covering 1998.01-2004.12. In this part I induce the contrarian strategies based on the method of Lo and Mackinlay(1990) to examine weekly contrarian and momentum effect. Further more I analyze the reasons which result to abnormal return through the method of Jegadeesh and Titman(1993).Chapter 5 is the study on the causes of contrarian and momentum effect. Basing on the effect of trading behavior on investment return, this paper analyses how and why the lagged change in trading volume and open interest influences contrarian and momentum effects.Chapter 6 is the conclusions and suggestions of this paper, which summarizes the theoretical and empirical research on contrarian and momentum effect, proposes the according suggestions, and finally points out the innovations and shortcomings of this paper.