The Impact Of Style Investment And Income Synergy On Individual Stock Returns

With the ever-growing financial market and the development of asset management, style investing, as an efficient asset allocation method, has been brought to public attention. Since empirical studies from western financial market have found the style investing has strong momentum effect, which also generate asset-level momentum and comovement within the portfolio, there can be a connection between style investing and asset return predictability.Result from Fama-French regression based on Chinese marketsuggests that style investing portfolio has predictability for individual asset future performance, stronger than asset historical return itself.Later, we construct arbitrage strategy with momentum effect. It seems the momentum effect of style investing in Chinese market lasts less compared to western ones, while investors can still gain profit through buying the winner and selling the loser in the last period. With the inclusion of comovement factor, we find that the high momentum comovement portfolios have significant higher return than low momentum comovement portfolios. The arbitrage strategy is also tested by weekly data and it turns out the weekly returns are also significantly positive.We believe that style investing can generate predictability in asset returns and momentum is also affected by comovement within portfolio. We also found that the Chinese market has much less period for momentum effect and there’s no short-term reversal as suggested from U. S market.