| Efficient Market Hypothesis (EMH) is by far one of the most important and influential theory in financial studies. However, more and more researchers are casting doubt on the hypothesis and results of the theory.Firstly, EMH requires investors to be rational, and only invest in the stocks whose prices are equal to their intrinsic values, but they do not always behave in this way according to researchers'findings, as sometimes they over- or under-react to the news.Secondly, in empirical studies, researchers found that if the funds took the relative strength strategy, that is, to buy the relative strength stocks, and sell the relative weak stocks in the meantime, they could earn abnormal profits obviously. All these funds are not consistent with EMH, which thus hardly explain the reasons of these abnomalies. After that, researchers began to employ behavior finance model.Momentum and Contrarian effect is one of the anomalies going against EMH. Momentum effect indicates that stock price tendency will last for a period of time. Therefore, zero-cost portfolio, buying the relative strength stock and selling the relative weak stock in the meantime, can get obvious positive profits. Foreign researchers have been studying the phenomena for years. And, they found that momentum effect vastly exists in most stock markets. Jegadeesh and Titman(1993) found momentum effect for the first time. They found in American stock market there is momentum effect in 3-9 months. Then, increasing number of attentions are paid to explaining this phenomenon from many respects, in which the most widely accepted is under- and over-reaction theory.In our country, controversies arise among local researchers about this topic. They found in our country, momentum effect is not as obvious as in foreign countries. Generally, in our country, momentum effect exists in short time such as four weeks. This is because our market is new and not mature. Individual investors occupy a large portion of the investors, and the number of institutional investors is small. Thus, there come too many noise traders in the market, which leads to the frequent volatility in the stock price. However, there is an independent market affiliated to the main stock market and called Medium and Small Listing Companies market in our country. Is there any difference between the two markets? This paper checks the Medium and Small Listing Companies market. The empirical study shows that momentum effect is different between the Medium and Small Listing Companies market and the main market.In the last part of the paper, I try to explain the results. |
