Industry Momentum Effect And The Investment Strategy Of Chinese Stock Market

The momentum effect is a hot topic of Behavioral Finance Theory. It is also a important way for the investors to do active investment management. Stock market of China is not a efficient market, we can use quantitative way to do some research from the perspective of behavioral finance.We investigate the industry momentum strategies that based on SW Research industry index from2001to2009. The results show that the industry momentum effect exist in Chinese stock market in short term and medium term. And the result is effected by the trend of stock market that the industry momentum is more significant in the bull market than in the bear market.Then, we discuss the source of industry momentum effect from the perspective of Behavioral Finance Theory. We analyze the structure of investors in the stock market and the behavioral characterize of the investors which can influence the industry momentum. The momentum effect is more significant in the Cyclical Industry than in the Non-Cyclical Industry.Finally, through empirical testing of industry momentum trading strategy, the results show that this strategy can achieve significant excess returns. Even including the factor of trading cost and short position restriction, this investment strategy still can get high excess returns by buying the winner portfolio. This shows that the industry momentum investment strategy has obvious practical meanings. We can analyze investment strategy and performance of some stock market investment products cases, the results can also prove the effectiveness of momentum investment strategies.