How Chinese Market Conditions Shape Momentum and Contrarian Returns

Summary

The paper studies how cross-sectional momentum and contrarian portfolio returns change over time in Chinese stock markets. It evaluates their risk-premium relationship using the Capital Asset Pricing Model and the Fama–French three-factor model, then examines how market conditions relate to contrarian profitability.

The reported evidence indicates that contrarian opportunities wax and wane, with higher profitability associated with an upward market trend, greater volatility and liquidity, and lower macroeconomic uncertainty. The findings suggest that the performance of these portfolios depends on the investment environment and are consistent with an adaptive view of markets. The summary provides no sample dates, portfolio construction details, transaction-cost estimates, or robustness results, so it does not establish how readily the reported patterns can be captured in practice.

Key ideas

• Cross-sectional momentum and contrarian risk premia in Chinese stocks vary over time.
• The analysis uses CAPM and the Fama–French three-factor model to assess risk-premium relations.
• Contrarian portfolio profitability is reported to be higher during upward market trends.
• Higher volatility and liquidity, alongside lower macroeconomic uncertainty, are associated with stronger contrarian returns.
• The reported market-condition relationships do not by themselves establish implementable net profitability.

Tags

# Wax and wane of the cross-sectional momentum and contrarian effects: Evidence from the Chinese stock markets


# Wax and wane of the cross-sectional momentum and contrarian effects: Evidence from the Chinese stock markets









This paper investigates the time-varying risk-premium relation of the Chinese stock markets within the framework of cross-sectional momentum and contrarian effects by adopting the Capital Asset Pricing Model and the French-Fama three factor model. The evolving arbitrage opportunities are also studied by quantifying the performance of time-varying cross-sectional momentum and contrarian effects in the Chinese stock markets. The relation between the contrarian profitability and market condition factors that could characterize the investment context is also investigated. The results reveal that the risk-premium relation varies over time, and the arbitrage opportunities based on the contrarian portfolios wax and wane over time. The performance of contrarian portfolios are highly dependent on several market conditions. The periods with upward trend of market state, higher market volatility and liquidity, lower macroeconomics uncertainty are related to higher contrarian profitability. These findings are consistent with the Adaptive Markets Hypothesis and have practical implications for market participants.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.