Enhanced Momentum Strategy And Its Test In Chinese Stock Market

Since the Shanghai Stock opened in 1990,China’s stock market has achieved quantitative and qualitative changes in market capitalization during just over 30 years.From its establishment and exploration,the A-share market has played a very important role in optimizing the financing structure of enterprises and promoting the development of China’s economy,while the effectiveness of the stock market has also been continuously enhanced.As one of the prevalent "market anomalies",the momentum effect in the A-share market has been controversial,thus the study of the momentum effect in the A-share market has strong practical significance.This paper found that the traditional momentum effect performed poorly in the Ashare market,so from the dual perspectives of behavioral finance and stock liquidity,we propose an improved enhancement scheme to solve the problem of improving and enhancing traditional momentum in the A-share market,and conduct an empirical analysis of the momentum effect based on the enhanced momentum factor.At the same time,the study constructs an enhanced momentum investment strategy based on the idea of momentum enhancement and combines it with a quantitative backtesting test of the strategy to answer the question of the feasibility of using the enhanced momentum strategy for investment in the Ashare market.Based on the theories of behavioral finance and liquidity,this paper constructs improved information dispersion,strong and weak information indices,maximum daily returns and illiquidity indicators to augment the traditional momentum factor,taking high momentum from the accumulation of momentum paths as an augmentation idea and combining the irrational behavior of investors and the impact of stock liquidity.This paper finds there is no traditional momentum effect on the monthly cycle,while the enhanced momentum factor exhibits a significant factor premium,and the premium return remains significant after adjusting for riskreturn.The study of the source of the momentum premium finds that factors such as stock profitability,and this size has an impact on the enhanced momentum factor.The quantitative backtesting of the momentum picking strategy shows that it is necessary to construct an investment strategy taking into account the trading restrictions.And based on the multidimensional strategy performance comparison and robustness testing,the enhanced momentum picking strategy shows significant improvement in both return capture and risk control.In summary,this paper constructs traditional momentum factors to study the momentum effect in the A-share market,finds that the traditional momentum effect does not exist in the Ashare market,and then creatively proposes various momentum enhancement schemes based on the perspective of behavioral finance and stock liquidity,which provides a certain theoretical basis for the study of the effectiveness of the momentum effect in the A-share market.Based on the results of the quantitative investment research in this paper,from the perspective of investors themselves,it is effective to construct an enhanced momentum strategy to invest in the A-share market with considering the effects of behavioral finance and stock liquidity,while the investment performance of using only the basic version of momentum strategy is poor.Meanwhile,the performance of the momentum strategy is related to the effectiveness of the Ashare market.As the A-share market is becoming more mature and complete,the momentum strategy may not be able to beat the benchmark consistently in the future,which also provides investors with valuable practical references.