Prior empirical studies find positive and negative momentum effect across the global nations, but few focus on explaining the mixed results. In order to address this issue, we apply the quantile regression approach to analyze the momentum effect in the context of Chinese stock market in this paper. The evidence suggests that the momentum effect in Chinese stock is not stable across firms with different levels of performance. We find that negative momentum effect in the short and medium horizon (3 months and 9 months) increases with the quantile of stock returns. And the positive momentum effect is observed in the long horizon (12 months), which also intensifies for the high performing stocks. According to our study, momentum effect needs to be examined on the basis of stock returns. OLS estimation, which gives an exclusive and biased result, provides misguiding intuitions for momentum effect across the global nations. Based on the empirical results of quantile regression, effective risk control strategies can also be inspired by adjusting the proportion of assets with past performances.
|Number of pages||10|
|Journal||Acta Mathematicae Applicatae Sinica, English Series|
|Early online date||17 Apr 2014|
|Publication status||Published - Apr 2014|
Bibliographical noteSupported in part by National Natural Science Foundation of China (No.11271368), Beijing Philosophy and Social Science Foundation Grant (No.12JGB051), Project of Ministry of Education supported by the Specialized Research Fund for the Doctoral Program of Higher Education of China (Grant No. 20130004110007), The Key Program of National Philosophy and Social Science Foundation Grant (No. 13AZD064), Fundamental Research Funds for the Central Universities and the Research Funds of Renmin University of China (No.10XNK025) and China Statistical Research Project (No. 2011LZ031).
- chinese stock market
- investment strategy
- momentum effect
- quantile regression