The Study Of Momentum Effect About China's Foreign Exchange Market

The data from the China foreign exchange trading center showing that, the RMB against the U.S. dollar's price rose above 6.4 to 6.3991 on August 11,2011 and hit a high point again since the exchange reform. Since the financial crisis in 2008, significant depreciation of the dollar and appreciation of the yen, violent fluctuations in international foreign exchange market. China, as a representative of emerging economies, RMB exchange rate movements caused unprecedented attention from all over the world, on the theory of China's foreign exchange market has become a research hotspot in recent years.In recent years, scholars, fund managers and individual investors are very concerned about the performance of the stock price which had the features of to rise or fall continued for a few days. And this nature is defined as momentum effect of stock price. Whether the momentum strategy can get excess returns became a focus among scholars. Le Baron (1992) analysis the German mark, the Japanese yen and the pounds three currency from January 1974 to 1991 February of weekly data, the results show that there was excess return in these markets. Another scholar's study confirmed there was momentum effect in the Latin American countries or other developing countries. Because the degree of market of China's foreign exchange market is very low, there are few studies about the momentum effect in China's foreign exchange market. The purpose of this paper is to test whether there is momentum effect in China's foreign exchange market.The main contents of this paper:The first chapter is the introduction of this paper, which describes the background, content, method and my innovation.The second chapter reviews the relative literatures. Summarize the domestic and overseas scholars about the research methods and the latest achievements of momentum effect. With a view on the basis of previous studies, build my own theory framework to research the momentum effect of China's foreign exchange market.The third chapter describes how to build the trading rules of the momentum effect, this paper want to test the existence of the momentum effects by the two methods, and compare the results of two methods.The fourth chapter is the main part of this paper. It gives the empirical results and simple analysis.Main conclusions and its interpretation are given in the chapter five.This study showed that there is notable momentum effect in China's foreign exchange market, the whole samples interval (2002.4.2-2011.7.6) 13600 kind of strategy of the average earnings reached 0.19%, it shows that China's foreign exchange market is not efficient market, through a certain trading strategy can be to obtain excess returns, and the momentum returns of China's foreign exchange market returns show the following characteristics:with the increase of holding period the earnings reduced. And through the sample interval tests found, the reform of RMB exchange rate mechanism produced significant influence to the momentum earnings of China's foreign exchange market. The momentum effect is weaker after the reform of China's foreign exchange market, the average excess return from 0.20% to 0.08%, we argues that this phenomenon consistent with the changes of China's foreign exchange market system.The result of the average momentum earnings from JT strategy (0.12%) is less than the MA strategy(0.19%). But in the JT strategy the distribution of the maximum value of momentum earnings has shown a significant regularity:when holding period less than formation period 1 day, it can obtain the biggest momentum gains.This distribution of the maximum benefits is different from MA trading rules.