A new momentum measurement in the Chinese stock market
A new momentum measurement in the Chinese stock market
Literature shows that the traditional momentum effect is absent in China, and our evidence also confirms this. However, considering the information of short-term investors' consistent beliefs in price movements, we can capture a significant momentum effect. The short-term information horizon for reflecting the investor belief is relative to the longer information horizon of asset past performance in capturing basic momentum. By constructing an indicator of CB to reflect investors' short-term consistent belief in price movements, we develop a new momentum indicator, CBMOM, as the product of short-term CB and long-run past returns. Based on the data from January 2000 to December 2020 in China, our results show that CBMOM has an advantage of capturing the momentum effect over the past-return measure. In particular, the momentum strategy based on CBMOM with the one-month CB and the one-year past return has the strongest profit. Furthermore, we examine the nonlinear impact of the synergy between CB and the one-year past return on stock returns. Specifically, the one-year past return has a greater positive impact as the cross-sectional CB level increases, but the significance is strong only for the highest-level CB.
Cross-sectional returns, Investor belief, Momentum effect, Past returns
Li, Yan
8e3c0545-eb58-48c8-a4a1-756a512acd16
Liang, Chao
156910f6-c89e-473e-a7d2-0f1065e5f01c
Huynh, Luu Duc Toan
5ce01bb6-0184-49cc-8f34-aae3a1169e47
June 2022
Li, Yan
8e3c0545-eb58-48c8-a4a1-756a512acd16
Liang, Chao
156910f6-c89e-473e-a7d2-0f1065e5f01c
Huynh, Luu Duc Toan
5ce01bb6-0184-49cc-8f34-aae3a1169e47
Li, Yan, Liang, Chao and Huynh, Luu Duc Toan
(2022)
A new momentum measurement in the Chinese stock market.
Pacific-Basin Finance Journal, 73 (June), [101759].
(doi:10.1016/j.pacfin.2022.101759).
Abstract
Literature shows that the traditional momentum effect is absent in China, and our evidence also confirms this. However, considering the information of short-term investors' consistent beliefs in price movements, we can capture a significant momentum effect. The short-term information horizon for reflecting the investor belief is relative to the longer information horizon of asset past performance in capturing basic momentum. By constructing an indicator of CB to reflect investors' short-term consistent belief in price movements, we develop a new momentum indicator, CBMOM, as the product of short-term CB and long-run past returns. Based on the data from January 2000 to December 2020 in China, our results show that CBMOM has an advantage of capturing the momentum effect over the past-return measure. In particular, the momentum strategy based on CBMOM with the one-month CB and the one-year past return has the strongest profit. Furthermore, we examine the nonlinear impact of the synergy between CB and the one-year past return on stock returns. Specifically, the one-year past return has a greater positive impact as the cross-sectional CB level increases, but the significance is strong only for the highest-level CB.
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Pacific-Basin Finance Journal - Accepted version
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A new momentum measurement in the Chinese stock market
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Accepted/In Press date: 6 April 2022
e-pub ahead of print date: 12 April 2022
Published date: June 2022
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© 2022 Elsevier B.V.
Keywords:
Cross-sectional returns, Investor belief, Momentum effect, Past returns
Identifiers
Local EPrints ID: 456671
URI: http://eprints.soton.ac.uk/id/eprint/456671
ISSN: 0927-538X
PURE UUID: 8f766750-43b5-41aa-b0cb-657520883a0e
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Date deposited: 05 May 2022 17:01
Last modified: 17 Mar 2024 07:16
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Author:
Yan Li
Author:
Chao Liang
Author:
Luu Duc Toan Huynh
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