Investor Heterogeneity and Momentum-based Trading Strategies in China

46 Pages Posted: 11 Sep 2020 Last revised: 10 Dec 2020

See all articles by Ya Gao

Ya Gao

Tianjin University - College of Management and Economics

Xing Han

University of Auckland Business School; Ghent University - Department of Financial Economics

Youwei Li

Hull University Business School

Xiong Xiong

College of Management and Economics and China Center for Social Computing and Analytics

Date Written: December 12, 2019

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 eliminate the effectiveness of investors pursuing the momentum-based trading strategy in China.

Keywords: Investor Heterogeneity, Intraday Return, Overnight Return, Momentum

JEL Classification: G11, G12, G14, G17

Suggested Citation

Gao, Ya and Han, Xing and Li, Youwei and Xiong, Xiong, Investor Heterogeneity and Momentum-based Trading Strategies in China (December 12, 2019). Available at SSRN: https://ssrn.com/abstract=3665443 or http://dx.doi.org/10.2139/ssrn.3665443

Ya Gao

Tianjin University - College of Management and Economics

NO.92 Weijin Road
Nankai District
Tianjin, 300072
China

Xing Han (Contact Author)

University of Auckland Business School ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

Ghent University - Department of Financial Economics ( email )

Sint-Pietersplein 5
Ghent, 9000
Belgium

Youwei Li

Hull University Business School ( email )

University of Hull
Hull, HU6 7RX
United Kingdom

Xiong Xiong

College of Management and Economics and China Center for Social Computing and Analytics ( email )

92, Weijin Road
Nankai District
Tianjin, Tianjin 300072
China

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