2004•Systems Engineering-Theory Methodology ApplicationRequires access
Profitability of Momentum Strategies and Contrarian Strategies in China Stock Markets
Wang Huan-chen
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Abstract
Using t-statistic adjusted by skewness, serial correlation and heteroskedastickty, this paper examines the profitability of momentum strategies and contrarian strategies in China stock markets, and investigates whether the mean-standard deviation ratio optimization allocation affects the profitability of two kinds of strategies. The results indicate that winners and losers of momentum strategies don't show return persistence and momentum strategies are not profitable. On the contrary, inners and losers of contrarian strategies present considerably significant return reversals, and even if short selling is not permitted, contrarian strategies also bring significant excess returns. Moreover, the profit of contrarian strategies is significantly improved when the mean-standard deviation ratio optimization allocation is used.