Abstract
The Chinese stock market is one of the markets where price reversal easily takes place in the world. Its opening has been accelerating. However, this market has plenty of shortcomings, some of which involve China’s special corporate culture. Artificial manipulations in financial reports are prevalent, which gives rise to uncertainties of investments. We propose turnover, financial transparency, and media coverage in the discussion of Chinese momentum. In so doing, we investigate the reasons for price reversal. We find that portfolio with high turnover usually has high financial transparency but it easily encounters price reversal. By contrast, the portfolio with high media coverage is free of price reversal even if these stocks have relatively low transparency and turnover.
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Notes
- 1.
In details, we first classify all stocks in the market by certain factors into several groups. In each group, we select winner and loser stocks by stock returns.
- 2.
If stock prices behave stably and exhibit very low volatilities, it is possible for prices to maintain past trends and thus momentum occurs. By contrast, when stock prices vary frequently and have evident volatilities, price reversals are likely to take shape and contrarian appears.
- 3.
In the literature, there are also other types of momentum portfolios. For example, interactive momentum portfolio classifies stocks by stock returns and certain factors independently. Break-down momentum portfolio first constructs winner and loser portfolio by stock returns. Within winner and loser portfolio, the stocks are then classified by certain factors. Limited to the length of paper, we only show the results of conditional momentum. (e.g., Lee and Swaminathan 2000; Grinblatt and Han 2005).
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Lin, HW., Huang, JB., Lin, KB., Chen, SH. (2020). Hot Trading and Price Stability Under Media Supervision in the Chinese Stock Market. In: Bucciarelli, E., Chen, SH., Corchado, J. (eds) Decision Economics: Complexity of Decisions and Decisions for Complexity. DECON 2019. Advances in Intelligent Systems and Computing, vol 1009. Springer, Cham. https://doi.org/10.1007/978-3-030-38227-8_17
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