The Empirical Research of Contrarian and Momentum Strategies in Chinese Stock Market (1993-2010)

Abstract

According to the EMH (Efficient Market Hypothesis), the price of stock should reflect available information correctly and quickly, investors can not obtain the abnormal return based on the past stock return. However, in the recent years, many practitioners and academics found there are some anomaly phenomenon existed in the stock market which caused strong debate with EMH (Efficient Market Hypothesis), such as continuation return and reversal return. Then, continuation return and reversal return can cause the momentum and contrarian investing strategies, respectively. If the momentum and contrarian trading strategies can generate abnormal return, it means the market is efficient. On the other hand, whether momentum and contrarian trading strategies can effect in some country's stock market, which is very important for individual and institutional investors. After China joined into WTO, which has played an important role in global stock market. Therefore, in this paper, following the method examined by Jegadeesh and Titman (2001), we studied the effects of momentum and contrarian trading strategies in the China's stock market over 17 - year from 1994 to 2010.