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Investor heterogeneity and momentum-based trading strategies in China

Author

Listed:
  • Gao, Ya
  • Han, Xing
  • Li, Youwei
  • Xiong, Xiong

Abstract

The conventional momentum strategy performs poorly overall in China, because stock prices behave very differently when markets are open for trading versus when they are closed. Stocks that are past intraday (overnight) winners persistently outperform those that are past intraday (overnight) losers in the subsequent intraday (overnight) periods. However, the same intraday- (overnight-) momentum strategy suffers dramatically in the subsequent overnight (intraday) periods. Further analysis shows that past intraday (overnight) winners tend to be more (less) speculative stocks which are highly demanded during the day (night). Overall, our results are consistent with investor heterogeneity, and this persistent tug of war virtually eliminates the effectiveness of investors pursuing the momentum-based trading strategy in China.

Suggested Citation

  • Gao, Ya & Han, Xing & Li, Youwei & Xiong, Xiong, 2021. "Investor heterogeneity and momentum-based trading strategies in China," International Review of Financial Analysis, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finana:v:74:y:2021:i:c:s1057521920302957
    DOI: 10.1016/j.irfa.2020.101654
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    14. Foye, James, 2024. "What Determines Equity Returns in Emerging Markets?," CAFE Working Papers 29, Centre for Accountancy, Finance and Economics (CAFE), Birmingham City Business School, Birmingham City University.
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    More about this item

    Keywords

    Investor heterogeneity; Intraday return; Overnight return; Momentum;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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