Based On The Chinese A-share Market Price Inertia Effect And Reversal Effect Research

Anomalies in the financial markets, such as Momentum and reverse phenomenon, make the efficient market hypothesis and the standard finance face a great challenge. Supporters of standard finance resort to the risk compensation to explain the anomalies. At the same time a new discipline, behavior finance, rose recently. Behavior finance thinks the market is not effective and the investors are bounded rational people instead of the rational person assumption in standard finance. The anomalies are brought by the recognition and behavior bias.Researches on momentum and reverse phenomenon in Chinese market are now mainly focusing on the test of the existence of them. Because the Chinese stock market started only from1990, and there are many different in the sample selection and statistic method, by now there is no consistent view on the existence of momentum and reverse phenomenon in Chinese stock market.This paper first test the existence of momentum and reserve effects in Chinese stock market. We found that there is very short term momentum effect in Chinese stock market, which is between two and three weeks. And in the super-short term which is within two weeks and the median term, which is between one and twelve month, there is statistically reserve phenomenon in China.Secondly, we test the relationship between the momentum or reverse effect and stock price, trading volume and company size in Chinese stock market.Thirdly, we use the Fama-French three-factor model to test whether these excess returns can be explained by market excess returns, size effect premium and the book to market effect premium. Again, we test the relationship between the excess return of momentum or reverse effect which is adjusted by Fama-French three-factor model and stock price, trading volume and company size.Afterward, we use four-factor model which is proposed by Carhart (1997) to test whether it have greater explanatory power of the momentum and reserve effects in Chinese stock market.At last, we provided applicable recommendations on Chinese stock market.