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Comomentum in China: Inferring arbitrage activity from return correlation

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  • Yue, Tian
  • Huang, Jiexiang
  • Ruan, Xinfeng

Abstract

This paper investigates whether arbitrageurs can have a destabilizing effect on the Chinese stock market. We use comomentum defined as high-frequency abnormal return correlation among stocks to measure arbitrage activity. In contrast to the findings of Lou and Polk (2022), we find that the returns on momentum stocks exhibit long-term stabilization in China, regardless of whether comomentum is higher or lower. The results suggest that fluctuations in arbitrage activity do not serve as predictive indicators for changes in long-term momentum returns in the Chinese stock market. These results further emphasize the missing effect of the momentum strategy in the Chinese market.

Suggested Citation

  • Yue, Tian & Huang, Jiexiang & Ruan, Xinfeng, 2024. "Comomentum in China: Inferring arbitrage activity from return correlation," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    • Handle: RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001021
    DOI: 10.1016/j.pacfin.2024.102351
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    Keywords

    Comomentum; Arbitrage activity; Momentum return;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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