The Study Of Industry Momentum And Concept Momentum In Chinese Stock Market

The Efficient Market Hypothesis is a cornerstone of modern finance theory, the theory is based on the rational economic man, risk-free arbitrage and information on the basis of fully reflect, according to the investors grasp information, the efficient market is divided into three types:weak type effective market, semi-strong efficient market and strong efficient market. A large number of scholars in the process of testing the efficient market theory found that some phenomenon cannot be explained by the classical finance and the efficient market theory, for example:herd behavior, small company effect, calendar effect, momentum effect and the reversal effect. In order to make a reasonable explanation for market anomalies, in the 90s some scholars who combined psychology and finance put forward the theory of behavioral finance based on incomplete rational hypothesis.The Momentum effect is a kind of market anomaly, Since Jegadeesh and Titman found the momentum effect in the U.S. stock market in 1993, many country scholars has found that the momentum effect exists generally in the global capital market. As early as 2000, domestic scholars to study whether there is the momentum effect in Chinese stock market, As early as 2000, domestic scholars study whether there is the momentum effect in Chinese stock market, the empirical results which use weeks or months data as samples showed that Chinese stock market exists the momentum effect in the short term, but appears reversal effect in the medium and long term. Concept momentum is that stock prices continue the trend of the original direction in the Chinese stock market when investors pursue some hot subject concept of stocks for a period of time. Unfortunately, the current domestic research results about the momentum effect is mainly focused on price momentum and earnings momentum, industry momentum and concept momentum have few research literature.Against this backdrop, this paper use all primary industry classification index week transaction data from Shen Wan securities as the research object from January 1,2001 to May 31,2015, in order to test whether there is industry momentum in Chinese stock market. On the other hand, this paper use concept index transaction data from wind as the research object from January 1,2010 to July 31,2015 weeks, in order to test whether there is concept momentum in Chinese stock market and analysis the source of concept momentum. The main conclusions about paper are as follows:1) There is significant industry momentum for Chinese stock market in the short and medium term, while zero-cost industry portfolios turn around in the long term; at the same time, industry momentum effect dropped as the extension of holding period. Industry momentum effect exists in bull market and bear market, but the magnitude of industry momentum in the bull market is higher than the bear market, and the duration of industry momentum in the bull market is longer than the bear market.2) There is significant concept momentum for Chinese stock market in the short term, and zero-cost concept portfolios can also achieve momentum, but it is not statistically significant; at the same time, concept momentum effect dropped as the extension of holding period. The holding and formation period of significant concept momentum portfolios are short, medium and long term in the bull market, while they are short term in the bull market.3) A part of concept momentum comes from industry momentum in Chinese stock market, its explanation degree between 20% to 40%; but industry momentum cannot explained by EMH, it mainly related to behavioral finance.4) Concept momentum effect is closely related to characteristics of Chinese stock market, the structure of the investors, the behavior biases of institutional investors. Irrational individual investors who chase concept stocks lead to the market speculative atmosphere, institutional investors who are influenced by them generate the behavior bias, at the same time, institutional investors who bear short-term performance pressure show obvious herding effect. Concept stocks which are paid a continuous attention by funds appear the huge increase, concept momentum investment strategies can get abnormal returns.