Researches On Contrarian Effect In China A Share Market

The contrarian effect is that the opposite of the trend of the original movement.The stock with lower returns in the past can earn higher profits than stocks with higher returns in the future.The paper studies the contrarian effect of Shanghai and Shenzhen A shares as the sample,which is divided into two parts.Firstly,this paper studies the existence of contrarian effect in the medium and short term respectively.Contrarian effect is researched in the whole sample period(from July,2001 to November,2016),then researched in bull market and bear market according to the market state.Besides,contrarian effect will be researched in Shanghai and Shenzhen A shares to verify the existence of three aspects and performance characteristics.The research period is from July 1,2001 to November 30,2016,a total of 185 months and 748 weeks,with monthly data on behalf of the mid-term,weekly data on behalf of the short-term,setting 8 different observation periods and the holding periods respectively,a total of 64 kinds of reversal portfolios.Statistically significant short-term and medium-term contrarian effect are found in whole sample period which shows that China's stock market is not an effective market,we can obtain a significant excess return through a certain technical analysis of the intermediate or short-term contrarian strategy in China's A share market.Secondly,contrarian profits of Shanghai and Shenzhen A shares are decomposed by using one-factor pricing model and this paper will make a concrete analysis of the results of profit decomposition,and puts forward some suggestions on the level of supervision and investors.The main conclusion shows that contrarian profits are mainly come from the average sequence covariance of the stock returns,which indicates that stock-price is overreaction to firm-specific information.The contribution to the expected contrarian profits reached more than 90%.The lead-lag structure effect is the second source of Contrarian profits.But in the short term,the lead-lag structure effect will weaken the Contrarian reaction and profits.The conclusion also shows that China's stock market contrarian profits are not from the expected stock return of the cross sectional variance.