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Momentum Trading, Mean Reveral and Overration in Chinese Stock Market

Yangru Wu ()

No 232004, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper considers the relationship between traded volume and volatility. We employ short sales data to discriminate between transactions that close existing long positions and transactions that establish new short positions. We test for, and where appropriate, incorporate non-linearity and asymmetry into the modelling process. The evidence supports a non-linear, bi-directional relationship between volume and volatility. The results suggest (i) that the market displays greater volatility following a period of short selling and (ii) that asymmetric responses to positive and negative innovations to returns appear to be exacerbated by short selling.

Pages: 23 pages
Date: 2004-12
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