Is Stock Market Overreaction Persistent Over Time?

This paper examines the stability and persistence of the market overreaction hypothesis as posited by DeBondt and Thaler (1985 and 1987), and reinforced by Chopra, Lakonishok, and Ritter (1992). Using monthly CRSP data for the period 1926 through 1992, we find that returns obtained from a contrarian investment strategy are not time-stationary. Specifically, there is no winner-loser portfolio relationship during the post-war period of 1940_50s. The relationship resumes during the pre-energy-crisis subperiod, but weakens again during the post-energy-crisis subperiod. The effectiveness of trading based upon the overreaction hypothesis is, therefore, suspect.     

Does the Momentum Strategy Work Universally? Evidence from the Japanese Stock Market

This paper investigates effectiveness of momentum strategies in the Japanese stock market during the period of 1975 to 1997. The main findings of this research are that momentum strategy portfolios which invest in past three-to-twelve month winners and sell past three-to-twelve month losers lose about 0.5% per month over the subsequent three to twelve months. This means that stock prices in the Japanese stock market reverse rather than continue over a medium-term horizon. The most significant reversal pattern is observed at the first month of portfolio formation and is unique to small stocks. Even with the market risk and size factor controlled, the price reversal is still present.     

Does the Size Effect Explain the UK Winner-Loser Effect?

Dissanaike (1997) found a long-term winner-loser effect in the UK, within a sample of large (FT500) companies. However, he did not investigate as to whether there was a size effect within his sample, nor did he check to see if it subsumed his winner-loser effect. We find evidence of a size effect within the FT500 sample, and the size and winner-loser effects are not unrelated. But, there is no evidence to suggest that the size effect subsumes the winner-loser effect.     

Momentum in the Chinese Stock Market: Evidence from Stochastic Oscillator Indicators

ABSTRACT

We explore whether investors earn profits through the use of stochastic oscillator indicators (SOI) for trading stocks. The results reveal that investors might use momentum strategies when trading constituent stocks of SSE 50 as the overbought trading signals emitted by SOI. We infer that the results might be caused by herding behaviors of Chinese investors since overoptimistic moods are likely to exist as evidenced by the 80 percent trading volume traded by individual investors in the Chinese stock market.     

Do Stock Market Investors Overreact?

This paper investigates the evidence on the stock market overreaction hypothesis (ORH), which holds that, if stock prices systematically overshoot as a consequence of excessive investor optimism or pessimism, price reversals should be predictable from past price performance. The ORH stands in contradiction to the efficient markets hypothesis which is a cornerstone of financial economics. This study is unique in the overreaction literature because it is restricted to larger and better-known listed companies, whose shares are more frequently traded. This restriction more or less eliminates two alternative explanations to the overreaction hypothesis: it minimises the influence of bid-ask biases and infrequent trading, and reduces the possibility that reversals are primarily a small-firm phenomenon. The paper also investigates a third alternative explanation, namely that time-varying risk explains the reversal effect. The study employs unbiased methods of return computation and uses data from 1975 to 1991 for nearly 1,000 UK companies. Overall, the evidence appears to be consistent with the overreaction hypothesis, subject to certain qualifications.     

Contrarian Investment Strategies in a European Context

In this paper we study value strategies for four European countries (France, Germany, the Netherlands and the United Kingdom). We find an outperformance for all four value variables which are investigated: the earnings-to-price (E/P) ratio, the cash-flow-to-price (CF/P) ratio, the book-to-market (B/M) ratio and the dividend yield. This outperformance is especially remarkable for the CF/P ratio, which amounts to 20.8% between the top and bottom quintiles in a univariate model. In a regression analysis, in which all four value variables as well as a correction for the size effect are taken into account, we find a difference of 11.8% for the CF/P ratio. We demonstrate that this result cannot be explained by risk differences alone. Our findings confirm the outperformance of value strategies as found earlier by Chan, Hamao and Lakonishok (1991) and Lakonishok, Shleifer and Vishny (1994) for Japan and the United States respectively.     

Short-term Contrarian Strategies in the London Stock Exchange: Are They Profitable? Which Factors Affect Them?

Abstract:  This paper provides evidence on short-term contrarian profits and their sources for the London Stock Exchange. Profits are decomposed to sources due to factors derived from the Fama and French (1996) three-factor model. For the empirical testing, size-sorted sub-samples are used, and adjustments for infrequent trading and bid-ask biases are also made. Results indicate that UK short-term contrarian strategies are profitable and more pronounced for extreme market capitalization stocks. These profits persist even when the sample is adjusted for market frictions, risk, seasonality, and irrespective of whether equally-weighted or value-weighted portfolios are employed. The most important factor that drives contrarian profits appears to be investor overreaction to firm-specific information.     

股指期货与现货市场的关系研究

本文从市场结构、交易执行效率和市场信息传播三个方面,由浅入深地展开了期现货市场关系的梳理和分析。股指期货市场的出现,一是使得原本现货市场单轨运行的市场结构变为了期现货市场双轨运行的新结构,增加了市场稳定性;二是依托期货交易方式的独特机制,大大提高了交易执行效率;三是期货价格也因此包含了更多内容,促进了市场信息的传播与扩散。同时,股指期货的独特设计使得其非常适合在危机条件下充分发挥功能,是一个重要的风险管理工具,已经成为现代资本市场的重要组成部分和基础性的内在稳定机制。     

中国股票市场效率的实证检验

了解股票市场是否有效对于监管者和投资者具有重要意义。近年来,大多数实证分析结果倾向于中国证券市场尚未达到半强式有效的结论,但对于是否达到弱式有效,则存在较大分歧。自回归检验结果表明,目前我国沪、深股市已达到弱式有效。这一结论对于进一步制定我国股票市场的发展对策具有重要的指导意义。     

Regulation Change and Volatility Spillovers: Evidence from China's Stock Markets

This paper investigates the structural changes of volatility spillovers between Chinese A-share and B-share markets induced by a regulation change on February 19, 2001, that allowed Chinese domestic investors to trade in the B-share market. The empirical results of the study, using high-frequency intraday data collected from a sample of seventy-eight firms issuing both A-shares and B-shares and employing a bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model, show that after the regulation change, the volatility in A-shares increases the volatility in B-shares, thus increasing the risk of the whole market, whereas the latter reduces the former, thus reducing the risk of the whole market. A further investigation of the determinants influencing these structural changes shows that the following factors can encourage structural changes that reduce overall market risk: government ownership, institutional ownership, firm size, B-share proportion, and market-to-book ratio. Conversely, the following factors can encourage structural changes that increase overall market risk: dual roles of chief executive officer and chairman and the joint effect of firm size and B-share proportion.     

The Impact of Oil Price Shocks on the Returns in China’s Stock Market

The main goal of this paper is to study the relationship between oil price shocks and mainland China’s stock market. From empirical study, we have found that the impact of oil price shocks on stock prices in China has been mixed. In contrast to the conventional wisdom that higher oil prices may cause lower stock prices, positive shocks to oil-market-specific demand resulted in both higher real oil prices and higher stock prices, which helps explain the boom of the Chinese stock market as oil prices were increasing in 2007. However, global oil demand and supply shocks had no significant effects.