The Empirical Research About Momentum Trading Strategy Be Implemented In China’s Stock Market

Since it was discovered the existence of the momentum effect, it not only caused adebate in the academic field, also produced various momentum trading strategies in thepractice. In the technical analysis, the value line ranking analysis is based on the analysis ofprice momentum from momentum effect, and some fundamental analysis also applied themomentum effect. The profitability research about all sorts of momentum trading strategy, canhelp not only in the financial theory, but also for technical analysis and investors’decision-making service.This paper summarizes the domestic and foreign momentum research, and then formsthe theoretical basis of this paper, based on the special properties of Chinese stock market.Secondly we gather data from the Shanghai a-share, and divide into groups according tocompany’s scale, Book-to-Market ratio, momentum, so we make up the momentum portfolio.When formative period and holding period both respectively is1,3,6months, we analyzeprofitability of the momentum trading strategy considered company’s scale factor and theBook-to-Market ratio, and then the differences are analyzed. Finally based on empiricalresults in this paper, we discuss the reasons and points out the shortcomings of this paper.Through studying the momentum trading strategy we found: the momentum tradingstrategy in China’s stock market is feasible, and the effect of company’s scale is moreapparent than Book-to-Market ratio’s in the long-term. Therefore, we suggest that when wetake the momentum trading strategy, we not only recognize the momentum investmentstrategy has its limitations, and also must operate according to the specific conditions of thewinner portfolio. The empirical conclusions and the actual situation of the market are in line.It proves the existence and the momentum effect and the influence in technical analysis.