IDEAS home Printed from https://ideas.repec.org/a/kap/compec/v51y2018i2d10.1007_s10614-017-9699-z.html
   My bibliography  Save this article

Artificial Momentum, Native Contrarian, and Transparency in China

Author

Listed:
  • Hung-Wen Lin

    (Nanfang College of Sun Yat-Sen University)

  • Mao-Wei Hung

    (National Taiwan University)

  • Jing-Bo Huang

    (Sun Yat-Sen University)

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.

Suggested Citation

  • Hung-Wen Lin & Mao-Wei Hung & Jing-Bo Huang, 2018. "Artificial Momentum, Native Contrarian, and Transparency in China," Computational Economics, Springer;Society for Computational Economics, vol. 51(2), pages 263-294, February.
    • Handle: RePEc:kap:compec:v:51:y:2018:i:2:d:10.1007_s10614-017-9699-z
    DOI: 10.1007/s10614-017-9699-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10614-017-9699-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10614-017-9699-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Harrison Hong & Terence Lim & Jeremy C. Stein, 2000. "Bad News Travels Slowly: Size, Analyst Coverage, and the Profitability of Momentum Strategies," Journal of Finance, American Finance Association, vol. 55(1), pages 265-295, February.
    2. Emilio Barucci & Roberto Monte & Roberto Renò, 2004. "Asset Price Anomalies under Bounded Rationality," Computational Economics, Springer;Society for Computational Economics, vol. 23(3), pages 255-269, April.
    3. Dongwei Su, 2011. "An Empirical Analysis of Industry Momentum in Chinese Stock Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 47(4), pages 4-27, July.
    4. Tobias J. Moskowitz & Mark Grinblatt, 1999. "Do Industries Explain Momentum?," Journal of Finance, American Finance Association, vol. 54(4), pages 1249-1290, August.
    5. Fama, Eugene F. & French, Kenneth R., 2012. "Size, value, and momentum in international stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 457-472.
    6. Andy C.W. Chui & Sheridan Titman & K.C. John Wei, 2010. "Individualism and Momentum around the World," Journal of Finance, American Finance Association, vol. 65(1), pages 361-392, February.
    7. Alexander Hillert & Heiko Jacobs & Sebastian Müller, 2014. "Media Makes Momentum," The Review of Financial Studies, Society for Financial Studies, vol. 27(12), pages 3467-3501.
    8. Clifford S. Asness & Tobias J. Moskowitz & Lasse Heje Pedersen, 2013. "Value and Momentum Everywhere," Journal of Finance, American Finance Association, vol. 68(3), pages 929-985, June.
    9. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. "Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
    10. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    11. repec:bla:jfinan:v:59:y:2004:i:3:p:1345-1365 is not listed on IDEAS
    12. Doron Avramov & Tarun Chordia & Gergana Jostova & Alexander Philipov, 2007. "Momentum and Credit Rating," Journal of Finance, American Finance Association, vol. 62(5), pages 2503-2520, October.
    13. Kang, Joseph & Liu, Ming-Hua & Ni, Sophie Xiaoyan, 2002. "Contrarian and momentum strategies in the China stock market: 1993-2000," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 243-265, June.
    14. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, vol. 58(6), pages 2515-2547, December.
    15. Charles M.C. Lee & Bhaskaran Swaminathan, 2000. "Price Momentum and Trading Volume," Journal of Finance, American Finance Association, vol. 55(5), pages 2017-2069, October.
    16. Naughton, Tony & Truong, Cameron & Veeraraghavan, Madhu, 2008. "Momentum strategies and stock returns: Chinese evidence," Pacific-Basin Finance Journal, Elsevier, vol. 16(4), pages 476-492, September.
    17. Tarun Chordia & Lakshmanan Shivakumar, 2002. "Momentum, Business Cycle, and Time‐varying Expected Returns," Journal of Finance, American Finance Association, vol. 57(2), pages 985-1019, April.
    18. Yangru Wu, 2011. "Momentum trading, mean reversal and overreaction in Chinese stock market," Review of Quantitative Finance and Accounting, Springer, vol. 37(3), pages 301-323, October.
    19. Bhattacharya, Utpal & Daouk, Hazem & Welker, Michael, 2003. "The World Price of Earnings Opacity," Working Papers 127185, Cornell University, Department of Applied Economics and Management.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yue Chen & Xiaojian Niu & Yan Zhang, 2019. "Exploring Contrarian Degree in the Trading Behavior of China's Stock Market," Complexity, Hindawi, vol. 2019, pages 1-12, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simarjeet Singh & Nidhi Walia, 2022. "Momentum investing: a systematic literature review and bibliometric analysis," Management Review Quarterly, Springer, vol. 72(1), pages 87-113, February.
    2. Chen Su, 2021. "A comprehensive investigation into style momentum strategies in China," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(1), pages 101-144, March.
    3. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, October.
    4. Martin H. Schmidt, 2017. "Trading strategies based on past returns: evidence from Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 201-256, May.
    5. Docherty, Paul & Hurst, Gareth, 2018. "Return dispersion and conditional momentum returns: International evidence," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 263-278.
    6. Hong-Yi Chen & Sheng-Syan Chen & Chin-Wen Hsin & Cheng Few Lee, 2020. "Does Revenue Momentum Drive or Ride Earnings or Price Momentum?," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 94, pages 3263-3318, World Scientific Publishing Co. Pte. Ltd..
    7. Shah Saeed Hassan Chowdhury & Rashida Sharmin & M Arifur Rahman, 2019. "Presence and Sources of Contrarian Profits in the Bangladesh Stock Market," Global Business Review, International Management Institute, vol. 20(1), pages 84-104, February.
    8. Yang, Yunlin & Gebka, Bartosz & Hudson, Robert, 2019. "Momentum effects in China: A review of the literature and an empirical explanation of prevailing controversies," Research in International Business and Finance, Elsevier, vol. 47(C), pages 78-101.
    9. Li, Bob & Ee, Mong Shan & Rashid, Mamunur, 2016. "Is momentum trading profitable from Shari'ah compliant stocks?," Review of Financial Economics, Elsevier, vol. 31(C), pages 56-63.
    10. Du, Qianqian & Liang, Dawei & Chen, Zilin & Tu, Jun, 2022. "Concept links and return momentum," Journal of Banking & Finance, Elsevier, vol. 134(C).
    11. Theissen, Erik & Yilanci, Can, 2020. "Momentum? What Momentum?," CFR Working Papers 20-09, University of Cologne, Centre for Financial Research (CFR).
    12. Subrahmanyam, Avanidhar, 2018. "Equity market momentum: A synthesis of the literature and suggestions for future work," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 291-296.
    13. Cheema, Muhammad A. & Nartea, Gilbert V., 2014. "Momentum returns and information uncertainty: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 173-188.
    14. Conover, C. Mitchell & Jensen, Gerald R. & Johnson, Robert R. & Szakmary, Andrew C., 2017. "Emerging markets: Is the trend still your friend?," Global Finance Journal, Elsevier, vol. 32(C), pages 128-148.
    15. Chen, Zhuo & Lu, Andrea, 2017. "Slow diffusion of information and price momentum in stocks: Evidence from options markets," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 98-108.
    16. Israel, Ronen & Moskowitz, Tobias J., 2013. "The role of shorting, firm size, and time on market anomalies," Journal of Financial Economics, Elsevier, vol. 108(2), pages 275-301.
    17. Narayan, Paresh Kumar & Phan, Dinh Hoang Bach, 2017. "Momentum strategies for Islamic stocks," Pacific-Basin Finance Journal, Elsevier, vol. 42(C), pages 96-112.
    18. Mao, Mike Qinghao & Wei, K.C. John, 2014. "Price and earnings momentum: An explanation using return decomposition," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 332-351.
    19. Kaihua Deng, 2016. "Price Momentum and Reversal: An Information Cascade Rationale," Annals of Economics and Finance, Society for AEF, vol. 17(2), pages 281-302, November.
    20. Huai-Long Shi & Zhi-Qiang Jiang & Wei-Xing Zhou, 2015. "Profitability of Contrarian Strategies in the Chinese Stock Market," PLOS ONE, Public Library of Science, vol. 10(9), pages 1-22, September.

    More about this item

    Keywords

    Momentum; Transparency; Contrarian;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:51:y:2018:i:2:d:10.1007_s10614-017-9699-z. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.