Abstract/Summary

Unlike developed securities markets, momentum or reversal effect disputes in China’s A-shares markets. Using an approach based on functional data analysis, we address this controversy in an effort to reconcile earlier inconsistencies. It identifies nonlinear cross-sectional variation patterns as well as the dynamic time-series evolution of average stock returns. Our empirical findings give persuasive evidence that mid-term momentum effects disappeared and reversal effects dominated the market after the 2008 global financial crisis. 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.