Momentum return in Chinese capital market and the influences of size, liquidity and historical return

Abstract

This paper investigates short term to intermediate-horizon momentum effect in Chinese capital market. The result of the research supports the assertion that momentum effect exists in Chinese capital market. Using momentum strategies could create return in excess of market average return. This paper also examines influence of firm size and average trading volume on the effectiveness of momentum strategies. We found that firm size has a negative relationship with momentum return and that relationship is statistically significant. On the other hand, our results confirm a negative relationship between trading volume and momentum return and that relationship is not as significant as firm size effect. The regression analysis also conclude that historical returns contribute the most to momentum return, indicating that momentum effect is not subsumed by size and liquidity effect.