The Empirical Research About Momentum Trading Strategy For Individual Investors

The past 30 years, scientific studies have found that the momentum effect, and based on the principles of momentum effect design trading investment strategy. A large number of scholars from various countries have done empirical research in the international financial markets, and observe a stable excess returns. However, as these trading strategies analyzed in the classic hypothesis that the study results are hypothetical and actual bias, for the short-selling restrictions and high transaction costs lead the investment unprofitable.Based on these limitations and disadvantages, many scholars analyze the integrated use of Momentum and Contrarian Investment Strategy, however such a n trading strategy does not apply to personal investors due to an large basket of stocks and the limited amount of money.Thus, this paper reference to predecessors findings and conclusions to explore a more simplified trading strategies to be accessible to individual investors with limited energy and less money involved in A-share market, to establish a portfolio contains only a small number of best performance, to explore whether the individual investors can participate in A-share market momentum investme nt strategy effectively.Based on all the effective transaction data in the Chinese A-share market from 2005-2014, this paper try to analyze this simplified trading strategy, to observe whether this simplification strategy can outperform the benchmark return.For the analysis, a 9-month formation period is implemented, all the shares are rank by the formation performance, from best to worst. Take the top 50 best performing stocks, constructed 15 kinds of portfolios which are equally weighted contained the best performing stocks in the formation period, and then hold each portfolio for a 9-month period.As the result, it turn out that the application of momentum trading strategy in C hina's A-share market can get a positive return on the investment, momentum trading strategy is an effective and feasible approach to investing. However, the momentum trading strategy's effect vary from the rise cycle of stock market to the down cycle, it will act efficiently in the rise cycle with a very substantial positive returns, while it show a loss in the down cycle. Moreover, it was seen that the bigger return come from the smaller portfolio.