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Contrarian strategy and herding behaviour in the Chinese stock market

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  • Qiwei Chen
  • Xiuping Hua
  • Ying Jiang

Abstract

This paper investigates the profitability of several types of zero-cost price momentum and contrarian strategies in the Chinese stock market for the 1994–2013 period. Several distinct features of Chinese market are documented. We find that contrarian strategies that use Jegadeesh and Titman's (1993) method with weekly frequency are profitable. However, investment strategies based on the ‘nearness’ to of 52-week high or the recency of the 52-week high are not profitable. Our analysis also shows that contrarian profits are higher during the crisis period of 2008–2012. In addition, the return reversal of the winner and loser portfolios suggests that contrarian profits can be attributed to overreaction. Finally, we also find evidence of herding behaviour in the Chinese market; and the degree of herding behaviour is positively correlated with the profits of contrarian trading strategies.

Suggested Citation

  • Qiwei Chen & Xiuping Hua & Ying Jiang, 2018. "Contrarian strategy and herding behaviour in the Chinese stock market," The European Journal of Finance, Taylor & Francis Journals, vol. 24(16), pages 1552-1568, November.
    • Handle: RePEc:taf:eurjfi:v:24:y:2018:i:16:p:1552-1568
    DOI: 10.1080/1351847X.2015.1071715
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