Price Reversal Stock Trading Strategy Based On Fundamental Information Factor

Price reversals and momentum are common in both domestic and foreign security market.In foreign market,short-term momentum and longterm price reversals prevail,but price reversals dominate in short-term horizon in A-share stock market of China.This paper studies price reversals in China's A-share stock market,we find that huge losses always exist in reversal strategy.To improve this phenomenon,we implement a compound reversal strategy based on past returns and fundamental information including cash flow,volatility,firm size,firm age and PE ratio.The results show that the returns of compound strategy based on cash flow,volatility and firm size have better performance on standard deviation,Sharp ratio and excess returns.This paper also divides the whole period into three states comprised of bear market,bull market and stable market,we examine the performance of strategies over three markets.We find that compound strategy based on firm size achieves the best performance in all three states of market.Moreover,we also creat minus-kurtosis factor to grasp extreme minus-returns.The results show that the new portfolios,without influence average return,reduce significantly the maximum loss and minuskurtosis(MK)and improve the distribution of return in comparison with reversal strategy.Also,these results show that A-share stock market in China does not follow Weak Form of Efficient Market Hypothesis.