Study On The Causes And Performance Of Momentum Effect And Reversal Effect Of A Shares In Shanghai Stock Market

Efficient Market Hypothesis (EMH) believes that all the related information got from the securities market can be reflected in the stock price promptly and fully. Therefore, investors can't get the excess returns from the securities market continuously by analyzing the related information in the market. But since the 1980s, lots of empirical research has shown that there are some phenomena called "market anomalies" in the securities market, which are inconsistent with the EMH. Moreover, it is hard to explain "market anomalies" by EMH. Two of the most typical anomalies are the Momentum Effect and Reversal Effect. Momentum Effect means that the stocks with higher returns will go on with higher returns than the stocks with lower returns in early period. Reversal Effect means that the stocks with higher returns will get lower returns than the stocks with lower returns in early period. These two anomalies have been found in many countries and have attracted the attention of more and more scholars.The paper first reviewed the Efficient Market Hypothesis which is the basis of the standard financial theoretical system, and introduced the "market anomalies" which can not be explained by EMH. Then, from the perspective of Behavioral Finance, the writer explained the Momentum Effect and Reversal Effect in theory on the basis of Investor Behavior Model. Next, using the research method of Debond and Thaler and adopting the non-overlapping sampling, the paper did empirical research on whether there were Momentum Effect and Reversal Effect in Shanghai stock market according to the monthly transaction data of A shares listed on the Shanghai Stock Exchange during the period of 1999-2008. The results are as follows: Overall, there was an obvious and short-term Momentum Effect in the A shares of Shanghai market; while, in the medium term, these stocks showed an obvious Reversal Effect; as for the Ranking Period of 9 months and 12 months, there was a weak Momentum Effect, but not obvious. At last, the paper tried to explain the results above in two aspects. On the one hand, the paper took the specific characteristics of China's stock market as the starting point, explained the above results through the speculative market, structure and the quality of market participants, and China's securities market system. On the other hand, combined with investors' specific behavioral features in China's stock market, the writer expanded HS Model which was proposed by Hong and Stein. That was, based on HS Model, the paper further introduced a new kind of investors who are called "market maker". The writer found that such investors made trend and profit through the acquisition and analysis of basic information, and making use of the medium and small investors' investment psychology that was to track trends. This process led to the momentum effect in the short term and Reversal Effect in the medium term.