Research On Momentum And Contrarian Effects In Chinese A-share Stock Markets

As an important theoretical basis of traditional finance, Efficient Markets Hypothesis has been deepening its connotation and extending its available range since decades of development. Although this theory has gained constant confirmation, it has also caused much controversy in the academia. Especially from the1980s on, there have been a lot of "abnormal phenomena" that could not be illuminated and verified by Efficient Markets Hypothesis in numerous empirical studies that have been made by researchers. A most typical one is the momentum of stock price and contrarian effects. The momentum of stock price and contrarian effects have constituted tremendous impacts and challenges for the traditional efficient markets theory, and have immediately become a heated and open-ended question in the research field of effective financial markets.Taking into account a series of positive changes in stock market after Tradable Share Reform, this thesis tests and verifies the profits that36momentum investment strategies conceived by Jegadeesh and Titman’s overlapping sampling method have brought in during their holding period based on the full sample data of Shanghai&Shenzhen A-share stock markets from May,2006to May,2011. And then we compare the test results based on company combination with different scale. What’s more, we examine different abnormal phenomena in different market states, with its aim to study the momentum and contrarian effects comprehensively in our A-share market.Firstly, it is empirically demonstrated that contrarian effects for short term (less than one year) are remarkable in our stock market. Also, the feature above appears more distinct as formation period and holding period are prolonging. Secondly, the contrarian effects and profits in small-size firm stocks are more obviously than those in large-size firm stocks. Thirdly, it exists serious "up and down together" phenomenon in our different stock market states. In bull market,"the strong is always strong" trend exists in short term while remarkable contrarian effects exist in long term. In bear market, most combinations can obtain profits from momentum effects for short term. But those are not obvious.Besides, this thesis also attempts to cause a detailed analysis of the empirical results from the two perspectives of behavioral finance theory and A-share market conditions in China. It is hoped to reveal that to a certain extent the fluctuation of stock price in Chinese A-share markets has its regularity and specificity.