Three-Day Momentum and Reversal Effects in Large-Cap Chinese Stocks

Summary

This research summary describes two strategies using constituents of the Shanghai 50. The momentum version ranks stocks by their return over the previous three trading days, selects the three strongest, weights them equally, and holds each cohort for nine trading days. It staggers allocations across nine daily channels, assigning one ninth of capital to each. A proposed refinement also requires a recent 20-day closing high; the summary says this did not materially change long-run returns but reduced drawdown and improved risk-adjusted measures.

The companion reversal strategy applies the same portfolio construction to the three weakest three-day performers. The summary reports annualized excess returns since 2009 for both versions, but provides no underlying methodology, transaction costs, sample details, or full paper text beyond a link reference. These reported historical results therefore do not establish future performance or robustness.

Key ideas

• The momentum strategy selects the three strongest Shanghai 50 stocks by their prior three-day returns.
• It equally weights picks, staggers capital across nine daily cohorts, and holds each cohort for nine trading days.
• A recent 20-day closing high is proposed as an additional confirmation for momentum picks.
• The reversal strategy uses the same construction but selects the three weakest recent performers.
• The summary reports historical excess returns but omits detailed testing assumptions and costs.

Tags

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