Abstract/Summary

Using an approach based on functional data analysis, we address the controversy that momentum or reversal effect disputes exist in China’s A-shares markets. It finds patterns of nonlinear cross-sectional variation and the dynamic change of average stock returns over time. After the global financial crisis of 2008, our empirical results show that momentum effects in the middle term went away and reversal effects took over. We also find substantial reversal effects for the short- (1-6 months) and long-term (3 years), respectively, but no evidence of permanent momentum effects in China.