Abstract

This study investigates short-horizon momentum-reversal patterns in Chinese stock markets since 2010, when investors were first permitted to engage in short sales of stocks. We use weekly returns of winner-minus-loser portfolios for stocks on the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the SZSE Growth Enterprise Market (GEM) to examine the profitability of the trading strategy. Weekly stock return reversals are observed and significant across the three markets, while returns appear to increase if the sorting period is extended or the holding period is shortened. The return-reversal effect in the GEM is the strongest but also disappears most quickly. A momentum pattern of winner-minus-loser portfolios for low-turnover-ratio firms is also observed across the three Chinese markets and the return-reversal pattern is prevalent for high-turnover-ratio firms.

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