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Momentum returns and information uncertainty: Evidence from China

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  • Cheema, Muhammad A.
  • Nartea, Gilbert V.

Abstract

A recent theory of information uncertainty (IU) postulates a negative (positive) relationship between IU and future returns (momentum returns). We extend this theory by showing that its predictions could be conditioned by differences in behavioral biases induced by culture. We find that greater IU does not necessarily result in lower future returns in China unlike in the U.S. In fact for some IU proxies, high IU firms have higher future returns. Second, we confirm earlier evidence of a weak momentum effect in the Chinese stock market which is consistent with the low level of individualism among Chinese investors reported in the literature. Third we find that momentum returns of firms with greater IU are not necessarily higher than firms with lower IU.

Suggested Citation

  • Cheema, Muhammad A. & Nartea, Gilbert V., 2014. "Momentum returns and information uncertainty: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 30(C), pages 173-188.
  • Handle: RePEc:eee:pacfin:v:30:y:2014:i:c:p:173-188
    DOI: 10.1016/j.pacfin.2014.10.002
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    2. repec:eee:finmar:v:38:y:2018:i:c:p:103-123 is not listed on IDEAS
    3. Greg Filbeck & Xin Zhao & Ryan Knoll, 2017. "An analysis of working capital efficiency and shareholder return," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 265-288, January.
    4. Li, Bob & Ee, Mong Shan & Rashid, Mamunur, 2016. "Is momentum trading profitable from Shari'ah compliant stocks?," Review of Financial Economics, Elsevier, vol. 31(C), pages 56-63.

    More about this item

    Keywords

    Momentum returns; Information uncertainty; Cultural differences; Behavioral biases; China;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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