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Investment horizons, cash flow news, and the profitability of momentum and reversal strategies in the Chinese stock market

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  • Gang, Jianhua
  • Qian, Zongxin
  • Xu, Tiange

Abstract

This study investigates the profitability of momentum and reversal strategies of different investment horizons in the Chinese stock market. The findings indicate that momentum strategies are profitable for investment horizons less than one week. For longer investment horizons, reversal strategies are profitable. This result is very different from the US market, where profitable momentum strategies yield to much longer investment horizons. We show that this is because investors in Chinese stock market generally overreact to the company cash flow news while investors in US market underreact to cash flow news.

Suggested Citation

  • Gang, Jianhua & Qian, Zongxin & Xu, Tiange, 2019. "Investment horizons, cash flow news, and the profitability of momentum and reversal strategies in the Chinese stock market," Economic Modelling, Elsevier, vol. 83(C), pages 364-371.
    • Handle: RePEc:eee:ecmode:v:83:y:2019:i:c:p:364-371
    DOI: 10.1016/j.econmod.2019.08.021
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    More about this item

    Keywords

    Momentum; Reversal; Overreaction; Stock market;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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