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Momentum strategies and stock returns: Chinese evidence

Tony Naughton, Cameron Truong and Madhu Veeraraghavan

Pacific-Basin Finance Journal, 2008, vol. 16, issue 4, 476-492

Abstract: This paper investigates the profitability of momentum investment strategies for equities listed in the Shanghai Stock Exchange. We also investigate the role of trading volume to examine whether there is any relationship between stock returns and past trading volume for Chinese equities. We find evidence of substantial momentum profits during the period 1995 to 2005 and that momentum is a pervasive feature of stock returns for the market investigated in this paper. Our findings suggest that investors can generate superior returns by investing in strategies unrelated to market movements. We also investigate the potential of past volume to explain momentum profits, and find no strong link between past volume and momentum profits. Our findings also show a strong momentum effect around earnings announcements but the magnitude of these returns is small in relation to the average monthly returns earned in the early months following portfolio formation.

Date: 2008
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Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

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Handle: RePEc:eee:pacfin:v:16:y:2008:i:4:p:476-492