Source Of Income Of China's Stock Market Momentum

Since the medium-term momentum effect of zero-cost trade strategy in American stock market was first found by Jegadeesh and Titman in 1993, the theorist had the massive research literature to indicate that, the stock market has the momentum effect, and it has formed two improvement of portfolio investment strategies on this foundation: Reverse strategy (contrarian strategies) and momentum strategy (momentum strategies). Moreover, the arguments of origin of the momentum returns among the overseas theorists also became increasingly drastic. However, in our country, although there were much research which found that Chinese stock market has the remarkable abnormal returns, but in the hypothesis testing methods, these research generally is based on the method of De Bondt and Thaler in 1985. But the portfolio constructed on the method can't decompose the abnormal returns by weight of each stock so that we are unable to explore it profoundly. Therefore the origin of the abnormal returns can't be analyzed from cross-section and time series.This paper uses the weighted relative strength strategy to construct the investment portfolio, and decomposes the abnormal returns by Conrad and Kaul Identities into two ingredients: one part is the forecast in the time series of stock return rate; the other is the difference in cross-section of stock return rate. The key research of this paper is the origin of momentum returns and respective contribution of the two ingredients. At first we divide the all the stocks which are big-size, high-price and low-trade-hand rate from January, 1995 to December, 2005 in Shanghai and Shenzhen stock market into winner portfolio and loser portfolio according to the WRSS, and construct the arbitrage portfolio according to the weight in order to examine the origin of the abnormal returns. Then in order to avoid the sample sequence autocorrelation and the heteroscedasticity which are led to the overlapping period, we revise the p-value which is adjusted by Newey-West to examine the significance of the returns. Through the data of months and the week diagnosis test, we found although there is higher time series forecast, simultaneously it exists the bigger cross-section risk in our country stock market. The risk first offsets the returns which the time series forecast brings about, then it further causes the returns which momentum strategy leads to positive, which makes the total returns positive. Finally we analyze why the momentum return exists, and find that it comes from insufficiency of investor's response and volatility which is caused by the influence on "policy market" caused by macroeconomics.This paper consists of these chapters as follows:The first chapter is about research background, purpose and significance. The first chapter is about research background, purpose and significance. This chapter mainly introduces the development of momentum in the world especially in China these years. Then it elaborates the significance of this paper from the angles of market effectiveness and investors' rational behavior.The second chapter is decomposition of the momentum returns. This part describes the investment strategies used by the data in this paper and the identities model.The third chapter are mainly preparing for the results of decomposing the identities. It elaborates the methods of selecting and analyzing the data.The fourth chapter decompose the momentum returns of the portfolio, and conducting the hypothesis testing.Finally, this part analyze the cause of the momentum returns, and mainly elaborates the innovation of this paper comparing with the other literatures, then providing investing advice.