Research On The Factor Momentum Effect Of The Stock Market In China

The traditional asset pricing theory believes that the price of an asset is a comprehensive reflection of various types of information,and cannot predict short-term future returns through historical prices.Moreover,for an effective market,excess returns cannot be obtained through normal channels.The expected return on assets is closely related to risk,and high returns often accompany high risks.However,a large number of empirical studies have found that there are many "anomalies" in the stock market,and factor strategies constructed through various anomalies can achieve significant excess returns.One of the more unique is the momentum effect,which cannot be well explained by models without momentum factors.Models that include momentum factors are only reflected in the momentum effect in terms of explanatory ability.The relationship between momentum factors and other factors is a research difficulty in the academic community.With the continuous deepening of research on various market anomalies,scholars have found that there seems to be a momentum effect in the factors of market anomalies.Factors that have performed well in the past will still perform well in the future,while factors that have performed poorly will also perform poorly in the future,thus proposing the concept of "factor momentum".From the perspective of investor sentiment,we can find that due to the persistence of investor sentiment,factor returns also have autocorrelation,and the higher the correlation with the Covariance matrix of stock returns(the greater the eigenvalue),the stronger the autocorrelation of their returns.This paper takes the stocks in China’s A-share market from January 1,2013 to December 31,2022 as the research sample,and tests the sustainability of the returns of 10 factors,namely,scale factor,value factor,profitability factor,investment factor,valuation factor,turnover factor,volatility factor,low beta factor,short-term reversal factor and momentum factor,as well as the relationship between the returns of each factor and the Covariance matrix of stock returns.By constructing a time series factor momentum long short investment portfolio based on the above factors,the effectiveness of factor momentum strategy in the Chinese A-share market was discussed,and the differences and connections between reversal factors,stock price momentum factors,and industry momentum factors and factor momentum were further discussed.The main research conclusions of this article are as follows:(1)There is a factor momentum effect in the Chinese stock market.Factors constructed based on market anomalies have autocorrelated time series of returns,and the persistence of factor returns is as follows: factors with poor historical returns will still perform poorly in the future,factors with good past returns will still achieve good returns in the future,and the historical returns of factors can predict future returns.(2)In the Chinese stock market,portfolio strategies based on factor momentum construction have significant returns,and factor momentum strategies are effective.The specific performance is as follows: 1.Both the time series factor momentum strategy and the cross-sectional factor momentum strategy can achieve significant returns in each period,but the excess returns will decrease with the shortening of the formation period;The performance of the cross-sectional factor momentum strategy is better than that of the time series factor momentum strategy.(3)The Fama-French five factor model cannot fully explain the return rate of factor momentum,and the factor momentum effect is more significant in the medium to long term.By selecting 3 months,6 months,and 12 months as the formation periods of factor momentum,both time series factor momentum and cross-sectional factor momentum exhibit significant alpha returns that cannot be explained by the Fama French five factor model.As the formation period increases,alpha returns decrease,indicating that the factor momentum strategy can achieve excess returns beyond the five factor model in the medium to long term,while the short-term effect of factor momentum is not good.(4)Factor momentum has a negative correlation with reversal effect,which is significantly different from stock price momentum effect and industry momentum effect,and is not another manifestation of price momentum or industry momentum.During different formation periods,there is no significant correlation between factor momentum and industry momentum,and the two are momentum effects that exist independently.During different formation periods,the momentum of time series factors can partially reverse explain the reversal effect,and there is a certain connection between the two at the stock level.During the 3-month formation period,there is no significant correlation between the time series factor momentum and the stock price momentum factor.At the formation periods of 6 and 12 months,there is a positive correlation between the time series factor momentum and the stock price momentum factor,and there is no significant alpha return.The momentum factor can be partially explained by the factor momentum.Overall,factor momentum is different from reversal effect,stock momentum effect,and industry momentum effect,and factor momentum itself has independence.