Abstract
This paper investigates the asymmetric momentum effect over time periods following UP and DOWN market states in the Shanghai and Shenzhen Stock Exchanges of the Chinese Class A share market. We show that the post-UP-market momentum effect eclipses the post-DOWN-market momentum effect in unison in both market segments. Notably, the asymmetric pattern of the market-state-dependent momentum effect in the Shenzhen Stock Exchange is outpaced by that found in the Shanghai Stock Exchange. Furthermore, through decomposing momentum returns, we reveal that low liquidity, higher market return volatility, and weak under-reaction of share prices towards firm-specific news jointly contribute to the subdued asymmetry of market-state-dependent momentum returns in the Shenzhen Stock Exchange.
Highlights
Since the momentum effect was first documented by Jegadeesh and Titman (1993) in their seminal work Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency, investigations around its existence have been conducted from various perspectives
We investigate the asymmetric patterns of market-state-dependent momentum returns found among Chinese Class A shares listed on the Shanghai Stock Exchange (SHSE hereafter) and the Shenzhen Stock Exchange (SZSE hereafter)
We examine how market risk, liquidity risk, market volatility, and an under-reaction of share prices towards firm-specific information factors contribute to the asymmetric patterns of the market-state-dependent momentum returns in the statistics of 3.11; the DOWN market state (SHSE) and the SZSE.2
Summary
Since the momentum effect was first documented by Jegadeesh and Titman (1993) in their seminal work Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency, investigations around its existence have been conducted from various perspectives. In one of the most recent studies on the momentum effect in the Chinese stock market, Wu and Choudhry (2015) investigate the differences between the anomalous phenomenon in the Chinese Class A and B share markets. We investigate the asymmetric patterns of market-state-dependent momentum returns found among Chinese Class A shares listed on the Shanghai Stock Exchange (SHSE hereafter) and the Shenzhen Stock Exchange (SZSE hereafter). We examine how market risk, liquidity risk, market volatility, and an under-reaction of share prices towards firm-specific information factors contribute to the asymmetric patterns of the market-state-dependent momentum returns in the SHSE and the SZSE.. The market states are defined by prior 12-month average market returns of the SHSE and SZSE
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