Does the Momentum Strategy Work at the Industry Level? Evidence from the Chinese Stock Market

Yujing Gong

Emerging Markets Finance and Trade, 2017, vol. 53, issue 5, 1072-1092

Abstract: This article examines the effectiveness of momentum strategy at the industry level in the Chinese stock market. We find that the intermediate-horizon momentum effect is stronger in industries with higher competition. This effect is consistent with the hypothesis that information contained in firms from highly competitive industries is vague and hence leaves more space for behavioral biases, which leads to the momentum effect. Alternatively, the measure of the Herfindahl–Hirschman index potentially captures the size effect in explaining this phenomenon. Moreover, concentrated industries experience a pronounced lead-lag effect of big firms on small firms, which is a potential explanation for the contrarian strategy. We do find that the short-horizon contrarian effect is pronounced in highly concentrated industries.

Date: 2017
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DOI: 10.1080/1540496X.2016.1264248

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