Momentum Strategy Based on Stock Returns: Past Returns and Future Performance in the Chinese Stock Market

Momentum strategy is regarded as the key method of quantitative investment, and its efficacy has been widely confirmed in the global stock market. This paper focuses on the Chinese stock market, and discusses the effectiveness and adaptability of momentum strategy in emerging markets. The core purpose of this study is to test whether the stock price gains of the past three and six months can predict the stock price gains of the following month, and evaluate the profitability and risk attributes of the simple momentum strategy through backtesting. For research purpose, this study adopted the Shanghai and Shenzhen a-share monthly earnings data, the two cities on the basis of historical revenue constructing portfolio, implementing classified management to the stock, divided into high yield category with low income category, to evaluate its performance in the test environment. Research data reveals that the strategy implements obvious excess return in the Chinese stock market, and its profit fluctuates according to the difference of market conditions, this study provides the momentum strategy for emerging market investors an empirical basis, for investors in a similar market situation also concise quantitative investment strategy provides a field model.