Research On Momentum Effect Based On Non - Systematic Risk Of China 's Stock Market

Efficient Market Hypothesis(EMH) believes that all the related information from the security market can be reflected in the security’ price promptly and fully. Therefore, investors can’t get the excess returns from the security market continuously by analyzing the related information in the market, which has been widely questioned by many scholars。Since the 1980 s, lots of empirical researches have shown that there are some phenomena called “market anomalies” in the security market, which are inconsistent with the EMH. Moreover, it is hard to explain “market anomalies” by EMH. Momentum effect is one of typical anomalies.In the past 20 years, with momentum effect and a series of financial anomalies have been found gradually, and some empirical evidences which are inconsistent with modern financial theory have being constantly raised. Momentum effect means that the stocks with higher returns will go on with higher returns than those with lower returns in the last period. Momentum effect has been found in many countries and attracted the attention of more and more scholars.In recent years, some foreign scholars have begun to study the impact of momentum effect from the perspective of idiosyncratic risk. From the perspective of idiosyncratic risk, this paper studied the correlation between momentum effect and idiosyncratic risk, as well as share price impact on momentum effect and idiosyncratic risk. The result for the study is meaningful for both leading investors to invest rationally and deepening the understanding of the inherent characteristics of Chinese stock market.First of all, this paper reviewed the researches on present momentum effect from both domestic and foreign scholars from the perspective of traditional financial theory, behavioral financial theory and CAPM. After that, this paper used the CAR method and non-overlapping sampling to study the momentum effect of monthly data for both Shanghai and Shenzhen Stock Exchange in the past decade, to build portfolio of constructing period and holding period for 3, 6, 9, 12 month. The result showed that when a 9-month period was constructed and a 3-month period was hold, and it showed a significant momentum effect. Then, this paper studied the correlation between idiosyncratic risk and momentum effect from the perspective of idiosyncratic risk. The result shows that a positive correlation exists between idiosyncratic risk and momentum effect, which shows that idiosyncratic risk do affect the momentum effect in the Chinese stock market. Finally, this paper also studied share price impact on both idiosyncratic risk and momentum effect, and the result showed that high idiosyncratic risk and momentum effect existed for high-priced stocks.