Investor heterogeneity and momentum-based trading strategies in China

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.

Citation

Gao, Y., Han, X., Li, Y., & Xiong, X. (2021). Investor heterogeneity and momentum-based trading strategies in China. International review of financial analysis, 74, Article 101654. https://doi.org/10.1016/j.irfa.2020.101654

• Journal Article Type: Article
• Acceptance Date: Dec 8, 2020
• Online Publication Date: Dec 14, 2020
• Publication Date: 2021-03
• Deposit Date: Dec 16, 2020
• Publicly Available Date: Jun 15, 2022
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 74
• Article Number: 101654
• DOI: https://doi.org/10.1016/j.irfa.2020.101654
• Keywords: Investor heterogeneity; Intraday return; Overnight return; Momentum
• Public URL: https://hull-repository.worktribe.com/output/3679202
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S1057521920302957?via%3Dihub