Analyzing the Efficacy of the Relative Strength Indicator of Capital Inflows and Outflows Based on Big Data Analysis in Achieving Abnormal Returns Evidence from the Chinese Stock Market

Abstract

This study originates from an analysis of market microstructure and introduces a novel statistical indicator of relative strength in capital flows through the application of big data analytics. This indicator effectively captures the impact of capital movements on future stock prices by integrating variations in stock prices with the volume of transactions within a corresponding timeframe. Building upon this foundation, the research develops an innovative momentum investment strategy based on the relative strength indicator of capital inflows and outflows, extending beyond the traditional fixed holding period momentum strategy framework. Empirical analysis reveals that this new indicator significantly demonstrates momentum effects in the Chinese A-share market; notably, in portfolios of stocks with smaller market capitalizations, the momentum strategy grounded on the new indicator achieves higher excess returns compared to traditional momentum strategies. These findings not only validate the efficacy of the new indicator but also underscore the critical role of big data analytics in enhancing the analysis of financial markets and the efficiency of investment decision-making.