Research On The Relationship Between Idiosyncratic Risk And Momentum Effect And Reversal Effect

With the emergence of market anomalies that deviate from the modern financial theory,the behavioral finance came into being.And one of the important research directions of the theory is momentum effect and reversal effect.The issue that idiosyncratic risk can not be completely dispersed has attracted the attention of domestic and foreign scholars.Many foreign scholars begin to study the relationship between the idiosyncratic risk and the momentum effect and reversal effect,but the domestic scholars still remain in the verification of the momentum effect and reversal effect,this paper first studies the relationship between idiosyncratic risk and the momentum effect and reversal effect in China A-share market.This paper makes an empirical test based on six hypotheses:first,we test the momentum effect and the reversal effect by constructing the momentum investment strategy;secondly,we use the Fama-French three-factor model to measure the idiosyncratic volatility,and based on the empirical conclusion,the relationship between idiosyncratic risk and reversal effect is studied by two-dimensional combinatorial analysis;Moreover,we also consider the impact of the bull and bear market,the company size,stock price and turnover rate on the relationship between idiosyncratic risk and reversal effect,respectively.We conclude that there is a strong reversal effect in China stock market,and there is significant momentum effect.but the momentum profit is small.There is a significant positive correlation between idiosyncratic risk and reversal effect.Considering the bull and bear market,we find that low idiosyncratic risk portfolios in the bull market show a significant reversal effect,and the high idiosyncratic risk portfolios show a significant momentum effect.In the bear market,the positive correlation between trait risk and reversal effect is still stable.Considering firm size,we find that the positive correlation between portfolio risk and reversal effect is still stable in large-cap stocks,but in small-cap stocks,the stability is poor.Considering stock price,we find that the positive correlation between idiosyncratic risk and reversal effect is stable after controlling the stock price.Considering turnover rate,we find that the positive correlation between idiosyncratic risk and reversal effect is stable in high turnover rate portfolio,this relationship is unstable in low turnover rate portfolio.