Contrarian and momentum strategies in the China stock market: 1993-2000

Joseph Kang*, Ming Hua Liu, Sophie Xiaoyan Ni

*Corresponding author for this work

Research output: Contribution to journalJournal articlepeer-review

212 Citations (Scopus)

Abstract

Using data on "A" shares, accessible only to local investors in China, we find statistically significant abnormal profits for some short-horizon contrarian and intermediate-horizon momentum strategies. Further analysis indicates that: (1) overreaction to firm-specific information is the single most important source of short-term contrarian profits; (2) the intermediate-term momentum profits are not, however, distinct due to the dominance of overreaction effect; and (3) the negative cross-serial correlation contributes to momentum profits. The lead-lag structure in China is unique in that (i) lag firms follow lead firms in the opposite direction and (ii) large firms lead small firms in holding periods from 1 to 8 weeks, while small firms lead large firms in holding periods from 12 to 26 weeks. These findings are robust to bid-ask spread and nonsynchronous trading, time-varying market risk and firm-size effect.

Original languageEnglish
Pages (from-to)243-265
Number of pages23
JournalPacific Basin Finance Journal
Volume10
Issue number3
DOIs
Publication statusPublished - Jun 2002

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • China stock market
  • Common factor
  • Firm-specific information
  • Measurement error
  • Momentum and contrarian profits and their sources
  • Overreaction and underreaction
  • Size-related lead-lag structure
  • Time-varying market risk

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