Comomentum in China: Inferring arbitrage activity from return correlation

Tian Yue, Jiexiang Huang and Xinfeng Ruan

Pacific-Basin Finance Journal, 2024, vol. 85, issue C

Abstract: This paper investigates whether arbitrageurs can have a destabilizing effect on the Chinese stock market. We use comomentum defined as high-frequency abnormal return correlation among stocks to measure arbitrage activity. In contrast to the findings of Lou and Polk (2022), we find that the returns on momentum stocks exhibit long-term stabilization in China, regardless of whether comomentum is higher or lower. The results suggest that fluctuations in arbitrage activity do not serve as predictive indicators for changes in long-term momentum returns in the Chinese stock market. These results further emphasize the missing effect of the momentum strategy in the Chinese market.

Keywords: Comomentum; Arbitrage activity; Momentum return (search for similar items in EconPapers)
JEL-codes: G02 G12 G23 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001021

DOI: 10.1016/j.pacfin.2024.102351

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