Contrarian strategy and herding behaviour in the Chinese stock market

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