Aversion of information ambiguity and momentum effect in China’s stock market

Abstract

Purpose – The empirical studies have indicated that the information uncertainty is one of the reasons leading to the momentum effect in the stock market. Based on this conclusion, the concept of “information uncertainty” is deepened into the concept hierarchy of “information ambiguity,” the purpose of this paper is to explain the momentum effect in the China’s stock market from information ambiguity. Design/methodology/approach – Based on the information ambiguity, the paper puts forward two hypotheses, portfolio analysis and cross-sectional regression analysis method were used to empirically test these hypothesis based on the weekly data. Findings – The empirical results support the two hypotheses. Originality/value – Finally, the paper discusses the importance from ambiguity to understand financial anomalies, such as momentum effect.