An Empirical Study On The Momentum Effect And Reversal Effect Of China A Share Market

The "effective market hypothesis" and "capital asset pricing model" in modern finance have had a very significant impact on the securities investment community.For example,the index funds have grown in size in recent years,which indicates that more investors are passive.Investment strategy to manage the portfolio.However,scholars have found a large number of unexplained market anomalies when examining market efficiency,such as the"January Effect of Small Companies","Enigma of Closed-end Fund Premiums","Reversal Effect",and "Momentum Effect".Among them,Debondt and Thaler(1985)found that the U.S.stock market has a long-term "reversal effect" and Jegadeesh and Titman(1993)found that the U.S.stock market has the most "momentum effect" in the medium-term.The momentum effect refers to the buying of early winner stocks.Compared with buying and losing stocks,they can obtain higher returns in the future,which is a strong and consistent market performance.In contrast,the reverse effect is reversed.Early buying of loser stocks can obtain higher returns in the future.The study of momentum and reversal effects by foreign scholars can be found that momentum and reversal effects are common phenomena in securities markets in various countries.The general rule is that there are momentum effects in the short term,and there are long-term reversal effects,and grooth,industry Factors such as turrover rate,company characteristics,and company characteristics will have an impact on momentum and reversal effects.Domestic scholars have controversy over whether there is a momentum effect in China's stock market.Wang Yonghong and Zhao Xuejun(2001)and Fang Libing(2011)found that there is no momentum effect in the A share market,but Zhou Linjie(2002)and Zheng Chunyi(2004)found that China's stock market has a momentum effect in the short term,and there is a long-term reversal effect.Because different scholars choose stock samples,the time limit for inspections,and test methods are different,they will inevitably get different conclusions.This paper uses weekly stock data from the Chinese A-share market from 1993 to 2016,refers to the method of Jegadeesh(1993)to construct a portfolio,and uses the "overlapping method" to calculate the revenue for each period,from price,industry,turnover,scale,Five dimensions of growth to test the characteristics of the momentum effect and reversal effect of China's A-share market.The empirical results of price momentum show that China A-shares have price momentum for 2 weeks,and when the observation period is greater than 8 weeks,the holding period is less than 4 weeks.The transfer effect is more obvious.When considering the influence of industry factors on the momentum effect,there is a momentum effect when the observation period is less than 4 weeks and the holding period is 1 week.When the observation period is greater than 8 weeks,there is a significant reversal effect.When considering the turnover rate factor,the momentum and reversal effects of the low turnover rate companies are not obvious.The high turnover rate companies have momentum effects in the short term and long-term reversal effects.When considering the company scale factor,the momentum effect and reversal effect of big companies are not obvious,and small companies have significant reversal effect in different observation periods and holding periods,and regardless of winner combination or loser combination,small-scale company income Larger than large company earnings.When considering the company's growth,low-growth companies only have a reversal effect when the holding period is 1 week.High-growth companies have no momentum effect,and the reversal effect is significant.Can the traditional financial factor model explain momentum gains and inversion gains?This paper uses the three-factor model and five factors to test the J/K=1,2 strategy with momentum effect in price momentum and the J/K=24,1 strategy benefit with inversion effect.The empirical results show that the factor model can explain the winner.Portfolio and loser portfolio returns,but cannot account for portfolio momentum gains and reversal returns.Since liquidity is related to the income of securities,and the split share structure reform is a very important event in the development process of A shares,this paper adds the improved Amihud liquidity factor and the dummy variable of stock splitting reform to the five-factor model and constructs seven factors.The model tests the momentum gain and the reversal gain.The empirical results show that the liquidity factor can explain the benefits of the reversal strategy before the equity split reform,but most of the benefits cannot be explained by the factor model.Taking into account the existence of short-sale restrictions in the Chinese securities market,statistical momentum gains and reversal gains cannot be converted into actual investment returns.This paper attempts to construct a zero-cost arbitrage portfolio through stock portfolios and the Shanghai and Shenzhen 300 stock index futures.It shows that the arbitrage combination can get a good return,but it needs to pay attention to the risk of holding stock index futures.