Momentum Effect:Causal Explanation And Strategy Design

At present,the academic research on momentum effect mainly focuses on two aspects:one is to explain its causes from the fundamentals and investor sentiment and other factors;the other is to design trading strategies based on momentum effect in order to beat the market.However,it is very difficult to describe the fundamentals and investor sentiment,or to study the interaction between different traders based on traditional models.As a result,we cannot fully understand the causes of momentum effect,and the practicability of strategy research is also insufficient.In order to solve the above problems,this paper mainly does two aspects of work:First,a financial simulation model is constructed based on ABM method.By setting the basic behavior pattern of traders,the stock market price change rule under the interaction of traders is observed,so as to study the causes of momentum effect.With the powerful abstract and simulation ability of ABM model,the problems difficult to describe the fundamentals and investor sentiment can be solved,and the interaction between different traders can be deeply studied.It is found that the momentum effect can be divided into long-term momentum effect and short-term momentum effect,the former caused by changes in fundamentals and the latter caused by market sentiment.In view of the complex relationship between fundamentals and asset prices,this paper chooses to design trading strategies based on short-term momentum effect.Second,based on the above conclusions,it filters out the impact of fundamentals by selecting short-term price data,introduces the idea of systematic trading to construct trading strategies,and obtains excess returns through out-of-sample tests in different market environments to prove its profitability.At the same time,the strategy has a clear stop on each trade,and the pullback is manageable,so it has better application value.The reasons why this trading strategy can outperform the market substantially and achieve stable profits far beyond the previous strategies are as follows:(1)Choose the trading objects reasonably and grasp the momentum effect in the process of rising and falling by using the short selling mechanism in the futures market;(2)The idea of systematic trading is introduced,and the trading strategy is regarded as an organic whole composed of various links including stock selection,entry,exit,position management,risk control,etc.The whole process of the trading strategy is improved by using K-line analysis technology,channel breakthrough trading ideas and other technical methods.(3)The adoption of15-minute high-frequency data combined with the trading mechanism of T+0 in the futures market can not only stop losses as soon as possible,but also accelerate the efficiency of capital turnover.In conclusion,the research conclusions of ABM simulation model provide theoretical basis and breakthrough for the design of momentum strategy,and this momentum strategy can significantly outperform the market and other momentum trading strategies in the out of sample test,which in turn proves the rationality of ABM model and the existence of momentum effect.Finally,based on the above research conclusions,this paper puts forward some practical suggestions from the perspective of macro-control,market regulation and investment transaction.