Does Momentum Investing Works in Chinese Stocks?

From the Perspective of Momentum Investing, What are the Factors That Determine the Volatility of Stock Prices?

DOI

10.2991/aebmr.k.220502.069How to use a DOI?

Keywords

Momentum investing; finance risk; quantitative finance; finance Analysis; Market risk

Abstract

In this paper, we first used the 12-minus-1-month, 6-minus-1-month, and 3-minus-1-month momentum strategy to analyze the stock price of the SSE Composite Index (000001.SS) and created scatter plots to show the negative linear relationship between different momentum period’s return and subsequent one-year returns. Our result suggests an anti-momentum investing effect, that is, the higher the return is in a given year, the worse the return would be in the subsequent year. By creating residuals plots and cook’s distances plots based on the linear regression, we inferred that the linear model is not enough for us to find a trend, and we doubted the feasibility of applying the traditional 12-minus-1-month or other different period momentum strategy on a stock market index of all stocks.

We then performed quadratic regression on the Gordon Model valuations of Shenzhen Clou Electronics Co., Ltd. (002121.SZ) and Sanquan Food Co. Ltd. (002216.SZ) to obtain their trends. Our results suggested these two stocks are severely overvalued, and their stock prices will fall in the future. We also employed Moving Averages, another critical momentum strategy, to show the successful prediction of stock price: A 5-day moving average crossing or exceeding the 30-day moving average is a buy signal; Conversely, it is a sell signal. Moreover, by using DuPont Analysis, Equity Analysis, and Credit Analysis, we found out that the company’s operating conditions, the level of debt, and the risk of bankruptcy will affect investors’ decisions and thus cause fluctuations in the stock prices. In general, we concluded that momentum investing can be applied to the Chinese stock market when the market is strictly supervised to avoid any insider trading or malicious capital operations. (Abstract)

Copyright

© 2022 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article distributed under the CC BY-NC 4.0 license.

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TY  - CONF
AU  - Xiping Huang
AU  - Yuhuan He
AU  - Hechen Jia
PY  - 2022
DA  - 2022/05/16
TI  - Does Momentum Investing Works in Chinese Stocks?
BT  - Proceedings of the 2022 International Conference on Urban Planning and Regional Economy（UPRE 2022）
PB  - Atlantis Press
SP  - 382
EP  - 392
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220502.069
DO  - 10.2991/aebmr.k.220502.069
ID  - Huang2022
ER  -