Analysis Of The Existence And Causes Of Price Momentum In China’s Stock Market

Efficient market theory is the cornerstone of the traditional finance。The theory points that if a market is efficient, stock prices must reflect all the information it contains. But in reality, there have been serious stock visions-momentum effects and reverse, which challenge the asset pricing theory. Studying the visions not only has theoretical significance but also gain practical significance:on the one hand our research can develop the efficient market theory and behavioral finance theory, offer more reasonable explanation about the change of the stocks. On the other hand finding the relationship of price changes help us to build the investment strategy which will obtain a positive excess.With a daily return sample of equities listed on Shanghai Market during April1995to March2013, this study investigated on the momentum effect in China, employing a method of empirical analysis after the introduction of the research background and summary relevant research literature. On the basis of presence of test, we selected an investment strategy which gains larger momentum profit to study the source of momentum profit. This article latter researched the source of revenue for the momentum by using the regression model. We referenced existing theoretical models and analytical methods and combined with China’s Shanghai A-share market’s overall specificity to construct a simple linear regression model. In this paper, we explained the momentum profit in terms of liquidity, risk factors and macroeconomic. We used turnover as liquidity factors, three-factor model as risk factors and six variables as macroeconomic factors to build a linear regression. The regression results found that liquidity is negatively correlated with momentum profit, while only the scale factor has a positive correlation with momentum profit. And only the fixed asset investment and industrial added value has explanatory power for momentum profit.