Momentum Effect Or Reversal Effect?

The efficient market hypothesis and the capital asset pricing model are the foundation of modern finance.However,the strict hypothesis of theory limits the application of theory in real life.There's the size effect of the stock market,the calendar effect,the herd effect,and all the other anomalies.One current academic discussion focus is explaining the momentum effect in the securities market and the reversal effect.The momentum effect,also known as the inertial effect,is one of the typical market anomalies.The momentum effect refers to the characteristics of stock returns in the stock market that can continue the original movement trend.The reverse effect is contrary to the momentum effect,that all securities should conform to the mean regression.In a certain period of time,the past higher-yielding securities will drop after a period of time,and stocks with poor performance in the past will show a strong reversal.In general,when the securities of the past high yield can maintain a significant and high level of growth over the next period of time,there is a momentum effect of the securities;When the future of high yield securities cannot sustain growth and the yield is significantly reversed,there is a reversal effect.This paper comprehensively studies whether there is a momentum effect or reverse effect in the domestic securities market.According to the first section of the third part of this paper,there is a literature review on whether there is momentum effect or reversal effect in the domestic securities market,which can be seen that this conclusion is not uniform.Some scholars believe that the domestic market is the momentum effect,while other scholars domestic securities markets are thought to be the reversal effect,some scholars found the momentum effect under the ultra short-term frequency,but other scholars have found that in the short term reversal effect in security market rather than the momentum effect.This paper summarizes the research experience of various kinds of literature,and the data frequency selection range is over short to long-term and tries to analyze the effect characteristics of China's securities market.In this paper,the overlapping sampling method is used to construct the momentum combination of 1,2,5,9 and 12 months respectively.Selection from March 2007 to September 2017,a total of 126 months of trading data for analysis.It is found that there is a significant reversal effect in the combination.When the observation period(J)is certain,as the time of investment increases gradually,the benefits of the reversal effect become more obvious.Both winners and losers have positive excess returns,but the losers are more profitable than the winners.Subsequently,the data frequency was further refined,and the data for 140 weeks from January 2015 to September 2017 was selected.The results show that there is no momentum effect and there is a reversal effect when the observed frequency is the week.Then this paper attempts to explore the actual application of the Fama-french five-factor model in the domestic market and analyzes the reasons for the significant reversal effect in the securities market by using the Fama-french five-factor model.The paper adopts the method of Fama and French third creation factor to analysis reversal effect,also selected from March 2007 to September 2017 data for analysis.In this paper,any one factor is used as the explanatory variable and the other factors as explanatory variables for regression analysis.The results show that the market risk premium factor and SMB factor can be covered by other factors as the explanatory variable,but cannot accept the hypothesis of two factors as redundant factors at the same time.Secondly,the Pearson test was performed on each factor and found that there was a strong negative correlation between investment style factor and other factors.Finally,the five-factor model was analyzed empirically base on winner combination,loser combination and reverse combination.Based on the analysis of the winner portfolio,RMW factor can provide a better explanation for the winner portfolio during the investment period of 2 months,but factor coefficient is negative,it means the enterprises with weak profitability outperform profitable enterprises in the investment period.Risk premiums and SMB factors can also explain the combination of winners in a given investment cycle.With the extension of the investment period,the t value of the excess return will gradually increase,and the interpretation of the model will be weakened accordingly.Based on an empirical analysis of the loser portfolio,most of the investment cycle combined earnings of intercept significantly,the loser portfolio returns only when the investment cycle for 3 months can be explained five factor model,the model's ability to explain the loser portfolio is weak.Based on combination of reverse analysis,when the whole investment cycle for 3 months,the model has a better explanation to portfolio returns,and when the entire investment more than 3 months,the model exists intercept hypothesis also refused to 0 or five factor coefficient can't refuse to 0 assumption,so model for explanation of the other months is weak;There is no significant investment cycle of all factors in the portfolio.Based on the analysis of three combination regression results,the excess returns in the model do not exist at the same time and can be explained by five factors,and there are no significant cases in any investment cycle of any factor.The intercept term of the portfolio is significant with the increase of the investment cycle.The SMB factor can explain the three kinds of combination income at the same time,while the CMA factor has no significant situation in the three combinations,this is consistent with the Pearson test results...