The Lead-Lag Effect In Stock Returns-empirical Anaiysis

Lo and Mackinlay use New York Stock exchange trading data as a research object and have made the conclusion that weekly returns on big firms exceed weekly returns on small firms within the same industry. However, not vice versa. At the same time, it can be regarded as a source of the excess returns of investors. In other words, under the premise of stable income sequence, there is a strong correlation between big firms and small firms. Autocorrelation indicates that there is a certain degree of predictability of stock returns in the short terms. Besides, many scholars have studied the lead-lag relations between the American and European stock markets returns, such as lead-lag relationship between revenue in higher turnover rate trading volume and in lower trading volume turnover volume. Research scholars found that there are more complex lead-lag relationships in the China stock market, and in the different states of the market, Lead-lag effect differs greatly.Under the premise of control scale and from an empirical point of view, this paper used the classic measurement methods of unit root test, Granger causality test and vector auto regression model, to study whether there is the lead-lag effect in China’s stock market. If it does exist, then verify the lead-lag relationship betweeen inter-industry and intra-industry. In this paper, we randomly selected eight sections from the industry sector, each industry is divided into three constituent stocks based on circulating market capitalization weighted portfolio(Large, medium and small). According to Vector Autoregression model, verifing the lead-lag relationship between betweeen inter-industry and intra-industry.Using daily return data as the basis data, and carry out empirical research to get results:gains in larger companies exceed that in smaller companies in inter-industry, This lead-lag relationship has not an obvious performance in the inter-industry.The scale-based lead-lag relationships in China stock market have a certain significance for institutional and individual investors who earried out rational investment. However, according to trading volume. turnover rate fluctuations momentum and other factors that may affect the lead-lag relationship, it is necessary to make a further investigations to identify whether these factors remain the same under the different market conditions.