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Title: The state of the market and the contrarian strategy: Evidence from China’s stock market
Authors: Chen, Q
Jiang, Y
Li, Y
Keywords: Contrarian and momentum;Market states;China stock market;Overreaction;Common factor;G11;G14
Issue Date: 2012
Publisher: Taylor & Francis
Citation: Journal of Chinese Economic and Business Studies, 10(1), 89 - 108, 2012
Abstract: Using the most comprehensive weekly dataset of ‘A’ shares listed on the Chinese stock market, this paper examines short-term contrarian strategies under different market states from 1995–2010. We find statistically significant profits from contrarian strategies, especially during the period after 2007, when China (along with other countries) experienced an economic downturn following the worldwide financial crisis. Our empirical evidence suggests that: (1) no significant profit is generated from either momentum or contrarian strategies in the intermediate horizon; (2) after microstructure effects are adjusted for, contrarian strategies with only four to eight weeks holding periods based on the stocks’ previous four to eight week's performance generate statistically significant profits of around 0.2% per week; (3) the contrarian strategy following a ‘down’ market generates higher profit than those following an ‘up’ market, suggesting that a contrarian strategy could be used as a shelter when the market is in decline. The profits following a ‘down’ market are robust after risk adjustment.
Description: This is the author's accepted manuscript. The final published article is available from the link below. Copyright @ 2012 The Chinese Economic Association.
ISSN: 1476-5284
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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