An Anecdote of Investor Anxiety and Momentum in China

Table 4

The effect of the daily relative order imbalance after risk adjustments of the A-share market.

Panel A: F = H = 1 day
ROI	Highest	2	3	4	Lowest
1F alpha	0.0090	0.0030	0.0014	0.0019	0.0041
t-stat	23.2604	9.8018	5.0059	6.7069	13.7079
CH-3 alpha	0.0090	0.0030	0.0014	0.0018	0.0041
t-stat	23.1289	9.7904	4.9579	6.6669	13.6641
FF-3 alpha	0.0090	0.0030	0.0014	0.0019	0.0042
t-stat	23.0065	9.7215	4.9283	6.6714	13.6330
Panel B: F = H = 2 days
ROI	Highest	2	3	4	Lowest
1F alpha	0.0063	0.0014	0.0010	0.0002	0.0021
t-stat	12.6070	3.5199	2.6454	0.5100	5.4200
CH-3 alpha	0.0063	0.0014	0.0010	0.0002	0.0020
t-stat	12.5762	3.5225	2.6300	0.4821	5.3693
FF-3 alpha	0.0063	0.0014	0.0010	0.0002	0.0021
t-stat	12.4690	3.4930	2.5972	0.4690	5.4331
Panel C: F = H = 3 days
ROI	Highest	2	3	4	Lowest
1F alpha	0.0052	0.0015	0.0010	0.0001	0.0016
t-stat	8.9597	3.0806	2.3848	0.1668	3.6955
CH-3 alpha	0.0052	0.0015	0.0010	0.00005	0.0016
t-stat	8.9300	3.0850	2.3652	0.1085	3.6304
FF-3 alpha	0.0051	0.0015	0.0011	0.0001	0.0016
t-stat	8.8141	3.0514	2.3829	0.1534	3.7256
Panel D: F = H = 30 days
ROI	Highest	2	3	4	Lowest
1F alpha	−0.0285	−0.0251	−0.0236	−0.0222	−0.0192
t-stat	−19.3416	−18.0918	−17.6604	−16.5880	−14.1780
CH-3 alpha	−0.0285	−0.0250	−0.0236	−0.0222	−0.0193
t-stat	−19.3661	−18.0459	−17.6647	−16.5807	−14.2392
FF-3 alpha	−0.0284	−0.0250	−0.0235	−0.0221	−0.0191
t-stat	−19.2355	−17.9866	−17.5366	−16.4639	−14.0597
Panel E: F = H = 180 days
ROI	Highest	2	3	4	Lowest
1F alpha	−0.0523	−0.0483	−0.0428	−0.0392	−0.0291
t-stat	−16.9308	−16.3887	−14.3305	−13.4320	−10.0824
CH-3 alpha	−0.0524	−0.0483	−0.0429	−0.0394	−0.0292
t-stat	−16.9177	−16.3102	−14.3240	−13.4106	−10.0567
FF-3 alpha	−0.0517	−0.0477	−0.0424	−0.0388	−0.0289
t-stat	−16.7266	−16.1821	−14.2409	−13.3209	−9.9843

This table presents the risk-adjusted daily momentum profits (MP) and related t-statistics (t-stat) for A-share stocks. F and H denote the length of the formation and holding periods, respectively. For each day, we calculate the daily relative order imbalance for every stock and sort the stocks according to the daily relative order imbalance for that day. For each group based on previous sorts, we select winner and loser stocks according to the past price growth rate in the formation period and then calculate winner-minus-loser return spreads in the holding period. We first test the momentum profits in the very short run. The most natural choice is 1 day and we also calculate momentum profits for 2 days and 3 days for robustness. In addition, we further test the momentum profits for 30 days and 180 days to see how they behave in the relatively long run. The sorts based on the daily relative order imbalance (ROI) are categorized into 5 groups. Winner stocks are based on the one-fifth of stocks with the highest price growth rate, while loser stocks are based on the one-fifth of stocks with the lowest price growth rate. The dependent variables are the winner-minus-loser return spreads for different levels of the ROI. 1F alpha denotes the regression intercept for the capital asset pricing model, CH-3 alpha is the regression intercept for the Chinese three-factor asset pricing model, and FF-3 alpha is the regression intercept for the Fama–French three-factor asset pricing model. The alphas are the risk-adjusted momentum profits. The t-statistics are based on White [68] heteroskedasticity-consistent standard errors according to Liu et al. [38]. The formation and holding periods have the same length according to Verardo [66], Avramov et al. [67], and Hillert et al. [31]. The critical value of 5% significance of t-statistic is 1.96.