Artificial Momentum, Native Contrarian, and Transparency in China

Hung-Wen Lin (), Mao-Wei Hung and Jing-Bo Huang
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Hung-Wen Lin: Nanfang College of Sun Yat-Sen University
Mao-Wei Hung: National Taiwan University
Jing-Bo Huang: Sun Yat-Sen University

Computational Economics, 2018, vol. 51, issue 2, No 5, 263-294

Abstract: Abstract The Chinese stock market has a large ratio of retail investors, which is significantly different from the stock markets in the US and Europe. We have known that momentum profits exist in the latter by applying Jegadeesh and Titman’s (J Financ 48:65–91, 1993) model with 6-month formation and holding periods. However, there are only a few studies on momentum profits in China. Therefore, this study examines whether the Shanghai and Shenzhen stock markets produce momentum profits. We find that these two markets have significant contrarian but not momentum profits. We also create an “artificial momentum” portfolio and follow Bhattacharya et al. (Account Rev 78:641–678, 2003) to compute the transparency indices. Our outcomes show that the corporate transparencies of the winners (losers) in the artificial momentum portfolios are close to those in the commonly-defined momentum portfolios. The averages of the decile transparencies are between 4.5 and 6.5, not only for the top 10% of winners but also for the bottom 10% of losers. According to these results, we suggest that financial transparency is irrelevant to the inertia and reversal of stock prices in the Shanghai and Shenzhen stock markets.

Keywords: Momentum; Transparency; Contrarian (search for similar items in EconPapers)
JEL-codes: G11 G18 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10614-017-9699-z

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