Industry Momentum In Chinese Stock Market

Between 1999-12-30 and 2005-12-30 industry momentum exists in the short-term (at the8-week horizon) in Chinese stock market with target on Zhongxin and Standard & Poor'sIndustry Index. With the hypothesis that there is sell short mechanism in Chinese stock market, industry momentum investment strategies by acquiring all the stocks from past (up to 6 weeks)winning industry and selling all the stocks from past (up to 6 weeks) losing industry and holdingthe portfolio in the shorter term (up to 2 weeks) appear significantly profitable.Besides, a second set of same strategies that skip a week between the portfolio formationperiod and holding period is examined. We find that stock price could react rapidly to the changeof news.In addition, the whole sample is examined by dividing it into two periods: the bull period(1999-12-30 to 2001-06-29) and the bear period (2001-07-02 to 2005-12-30). We conclude thatthe profitability of industry momentum strategy should be related to the status of Chinese stockmarket. The strategy is profitable in the bear period. Whereas, it is not in the bull period.