EconPapers    
Economics at your fingertips  
 

Profitability of reversal strategies: A modified version of the Carhart model in China

Wei Zhang, Guanying Wang, Xingchun Wang (), Xiong Xiong and Xuan Lei

Economic Modelling, 2018, vol. 69, issue C, 26-37

Abstract: This paper shows that buying stocks that have performed poorly and selling stocks that have performed well in the past generates positive returns in the Chinese stock market. Profits from reversal strategies cannot be explained by systematic risk and fundamental factors. Testing the Fama-French three-factor model and reversal strategies in multiple formation periods, we find that the price-to-earnings ratio explains the stock returns better than book-to-market ratio does, and investors benefit more from short-term reversal strategies than medium-term momentum strategies. Substituting the book-to-market factor and momentum factor for the price-to-earnings ratio factor and reversal factor, we propose a modified Carhart model. Our findings deepen understanding on the link between Chinese stock returns and their historical performance.

Keywords: Reversal effect; Asset pricing; CAPM; Fama-French model; Carhart four-factor model (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S026499931730665X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:69:y:2018:i:c:p:26-37

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-10-12
Handle: RePEc:eee:ecmode:v:69:y:2018:i:c:p:26-37