The Analysis Of Effectiveness Of Trend Strategy Based On Average Stock Price Indices

The paper tested weekly momentum and reversal effect in A-share market between 2000 and June 2015,and only found reversal effect but no momentum effect.The existence of reversal effect proves that stock price trends are predictable,but reversal strategy is unstable,reflecting that the investment strategy that depends only upon the historical return rate of one time window cannot effectively capture the trends.Based upon average stock price indices,we created the trend strategy that was better than reversal strategy upon both return and stability.Trend strategy has better performance,for it not only can capture the stock price trend information captured by reversal strategy but also can capture the information that cannot be captured by reversal strategy.Trend strategy is robust to the affect of stock characteristic indices,such as market risk factor,maket size,book-to-market ratio,price earnings ratio,leverage ratio and turnover rate,the formation of strategy and sample selection.Better stock market,lower institutional investor holding and lower attention of analysts lead to better performance of trend strategy.Combined with turnover rate,trend strategy can gain better performance.The verification of effectiveness of trend strategy not only contributes a new investment idea to capture stock price trends,but also proves that average stock price indices have the general prediction of stock return rate,which contributes a proof for the application of average stock price indices in stock investment.