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An Empirical Study On Momentum And Contrarian Strategies In China A-share Stock Market

Posted on:2015-02-18Degree:MasterType:Thesis
Country:ChinaCandidate:P ChuFull Text:PDF
GTID:2309330434953306Subject:Finance
Abstract/Summary:PDF Full Text Request
Inspired by Liu bo and Pi tianlei’s study on momentum and contrarian strategies about Chinese stock market, this paper adopts De Bondt and Thaler’s (1985) model to probe the momentum and contrarian effects in Shanghai and Shenzhen A-share markets by dividing the market into bull and bear markets based on the Shanghai and Shenzhen A-share sample from January1996to September2013. The empirical results show that there is a certain degree of momentum and contrarian effects in bull market but little in bear market.Firstly, this paper reviews the theory on the Efficient Market Hypothesis and behavioral finance and describes the interpretation on momentum and contrarian effects by the perspective of traditional and behavioral finance theory. As for China stock market, most of the scholars agree that it is weak efficient and tend to be semi-strong. So, whether there is momentum or contrarian effect in China stock market? Secondly, this paper gives a literature review on momentum and contrarian effects in foreign and domestic stock markets. It is true that momentum and contrarian effects are remarkable phenomena. However, no identical conclusion has been made in China stock market because of different sample or research method. With the development of China stock market, the limitation from the sample and method is becoming weak and weak. Then I think it is necessary to research momentum and contrarian effects in China stock market. Thirdly, this paper shows the entire process of the empirical test on momentum and contrarian strategies. First of all, we divide Shanghai and Shenzhen A-share into bull and bear markets using the method of BB program proposed by Pagan and Sossounov (2003). After identifying all peaks and troughs, I analyze the feature of momentum and contrarian effects in China stock market by Hong and Stein’s (1999) model. In addition, I make some different hypothesis from Hong and Stein in order to accord the bull and bear markets. Meanwhile, that is an innovation in this paper. Furthermore, we discuss the relationship between the profit and formation period and holding period. Finally, based on De Bondt and Thaler’s model, I make an empirical test on momentum and contrarian strategies. According to the t-statistics, this paper shows the efficiency of momentum and contrarian strategies.The conclusion is that there is a certain degree of momentum and contrarian effects in bull market but little in bear market. Moreover, contrarian effects are more frequent than momentum effects and the profit increases with longer formation and holding period. Maybe there are three reasons for these features:the investors, the restriction of short and short period of some bull or bear markets.
Keywords/Search Tags:momentum contrarian, bull market, bear market
PDF Full Text Request
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