Momentum effect differs across stock performances: Chinese evidence

Article

DOI: 10.1007/s10255-014-0290-2

Cite this article as:
Li, Z., Liu, S. & Tian, M. Acta Math. Appl. Sin. Engl. Ser. (2014) 30: 279. doi:10.1007/s10255-014-0290-2
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Abstract

Prior empirical studies find positive and negative momentum effect across the global nations, but few focus on explaining the mixed results. In order to address this issue, we apply the quantile regression approach to analyze the momentum effect in the context of Chinese stock market in this paper. The evidence suggests that the momentum effect in Chinese stock is not stable across firms with different levels of performance. We find that negative momentum effect in the short and medium horizon (3 months and 9 months) increases with the quantile of stock returns. And the positive momentum effect is observed in the long horizon (12 months), which also intensifies for the high performing stocks. According to our study, momentum effect needs to be examined on the basis of stock returns. OLS estimation, which gives an exclusive and biased result, provides misguiding intuitions for momentum effect across the global nations. Based on the empirical results of quantile regression, effective risk control strategies can also be inspired by adjusting the proportion of assets with past performances.

Keywords

chinese stock marketinvestment strategymomentum effectquantile regression

2000 MR Subject Classification

60K2590B22

Copyright information

© Institute of Applied Mathematics, Academy of Mathematics and System Sciences, Chinese Academy of Sciences and Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Department of Statistics and Actuarial ScienceThe University of Hong KongHong KongHong Kong
  2. 2.Department of Finance and InsuranceLingnan UniversityTuen Mun, New TerritoriesHong Kong
  3. 3.Center for Applied Statistics, School of StatisticsRenmin University of ChinaBeijingChina
  4. 4.School of StatisticsLanzhou University of Finance and EconomicsLanzhouChina