Research On Momentum Effect In Chinese Stock Markets

In recent years, scholars, fund managers and individual investors are very concerned about the characteristics of the stock price, which shows continually rise or continually fall. Then this nature is defined as the momentum effect of stock price, and the investment strategy based on the nature is called momentum strategy. Whether the momentum strategy can bring excess revenue is the very point that scholars have repeatedly discussed about. Foreign study shows that the momentum exists almost in all the stock markets of developed countries. As this phenomenon goes against with the traditional asset pricing theory, the reason how it comes into being has been a hot topic in finance.According to the empirical analysis of the momentum effect in Chinese stock markets, the purpose of this paper is to explore the characteristics and causes of momentum effect in Chinese stock markets.The thesis first reviewed the development context from the traditional financial theory to behavioral finance theory, which is from the theory of market validity, the found anomalies, the academic community's interpretation of the anomalies, to the development and perfection of behavioral finance theory.Using the strictly selected relevant data of 820 shares from the database of Chinese stock markets (CSMAR) which includes both Shenzhen and Shanghai's A-share listed companies from 1997 to 2007, we make a detailed analysis of the momentum effect in Chinese stock markets.In this paper, overlapping sample tests have been used to make a monthly earnings momentum strategy analysis on stock samples of Shenzhen and Shanghai's A-share from January 1997 to December 2007 in Chinese A-share markets. In the study, we find that in the medium term there is a clear momentum phenomenon in Chinese A stock markets. Subsequently, we introduce a lag period between the sort period and the holding period, and the conclusion that the introduction of the one-month time lag can lead to more significant gains of momentum indicates that in Chinese stock markets there exists price lag in response to the market information, namely, the information in our stock markets is gradually spread.This paper holds the view that there is departure in the methodology, to some extent, when Chinese scholars make a lot of empirical test on whether there is the momentum effect in Chinese securities markets, and the research on Chinese momentum still remains the phase to introduce the phenomenon and imitate simply empirical research, to the greater extent. The study on the formation mechanism and long-term existence of momentum effect is seldom involved.After reviewing the former research, we studied the explanation for the reason for momentum profits. We lean to the interpretation of the behavioral financial perspective, and explain the cause of Chinese stock market on the momentum in this perspective. Research showed that we can explain the momentum of Chinese stock market much better in the perspective of financial, with the overall features of Chinese stock market, and market participant's structure, and their respective psychological and behavioral characteristics.