Research On Momentum Effect And Momentum Investment Strategy Of Stock Market Based On Noise Trading

The modern financial theory system is based on the efficient market hypothesis(EHM).Under this hypothesis,"price is correct and actors are rational".In reality,investors cannot be perfectly rational,resulting in markets that are not always efficient and there are a series of financial market anomalies.Momentum effect is a significant financial anomaly,which is characterized by the tendency and statistical characteristics of stock price movements rather than the random walk.Momentum effect exists in the financial market for a long period of time,so theoretically investors can obtain the expected return of assets according to the longterm steady performance of momentum effect.In a financial market environment full of noise trading,noise trading will affect the changes in financial market prices.Therefore,this paper attempts to establish an explanation framework for the cause of momentum effect through the theories related to behavioral finance and noise trading,and to construct a new momentum investment strategy based on the performance of noise trading on momentum effect,so as to provide news ideas and basis for investors' practice of momentum investment strategy.Firstly,this paper analyzes the performance of noise trading in China's financial market from the perspective of investors' mind and behavioral bias,and reveals how the behavior of noise traders affects the price changes in the financial market and increases the uncertainty of future stock returns.Secondly,on the basis of the traditional theory of noise trading,momentum traders are introduced to construct an extended theoretical model to analyze the impact of noise trading on stock returns and explain the phenomenon of momentum effect.Finally,based on the extended noise trading theory model,this paper constructs a new momentum investment strategy,which uses the noise trading level of individual stocks as an effective factor to determine the investment strategy.In the traditional momentum strategy(Jegadeesh and Titman,1993),add noise trading factor to reconstruct the winner portfolio and loser portfolio,and to explore the use of stock noise gain momentum in the securities market investment income.The main empirical conclusions of this paper are as follows: 1.There is noise trading in China's stock market,and the noise trading level of SSE 180 index stocks measured by noise trading risk definition is relatively high;2.The noise trading level of individual stocks has a positive correlation with the rate of return.After controlling variables such as company size,asset-liability ratio,return on total assets,and turnover ratio,there is still a significant positive correlation between them;3.Constructing momentum investment strategies and strategies based on the level of noise trading,the results show that: stocks with high noise trading levels have a momentum effect.Buying high-noise trading level winner combinations and selling high-noise trading level loser combinations will get higher momentum returns than traditional J-T momentum investment strategies.Low-noise trading levels have reversal effect in the short and medium term,and it is more suitable to adopt a reversal investment strategy.