Characteristic-balanced Momentum

Momentum effect is always a hot topic in the researches of behavioral finance,and also has overturned efficient market hypothesis.Besides momentum effect has its meaning to the operation strategy of stock investment market.From one side,it enriches the efficient market hypothesis and behavioral finance,and makes more reasonable explanation to the change of stock price.From another side,it provides effective instructions for fund investors,making fund managers apply Momentum investment strategies to gain excess earnings.According to the amount of literature on Momentum effect,the researchers found that the profit of conventional momentum strategy is not stable.Besides,it is more risky and would be affected by the factors of market conditions,scales of the company and book to market ratio.Thus this dissertation has used the listed ordinary share data on NYSE\AMEX\NASDAQ and optimized the momentum strategy on the basis of conventional momentum strategy.It has also controlled the effect of market conditions,company size and book to market ratio to momentum strategy.We call the above strategy as characteristic-balanced momentum.The stock data is divided into 27 groups according to the system risk,company size and book to market ratio.Each group is ranked according to the winner group and loser group and finally we get the zero investment group.This way can control the system risk,company size and the book to market ratio of the groups and make the momentum strategy expose less to the three characteristic and gain more stable profit.Above all,the dissertation has compared the characteristic-balanced momentum strategy to conventional Momentum effect,we have found that the characteristic-balanced momentum strategy is better than conventional Momentum effect and residual Momentum strategy no matter from the angle of the profit or the risk.