This master thesis aims to investigate the profitability of momentum andcontrarian investment strategies in Chinese “A” share market listed on both theShanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) from2002 to 2011. We examined 81 strategies with various horizons based on weeklystock return. Results suggest that contrarian strategies are more likely to besuccessful than momentum strategies. Short- and medium-term contrarianstrategies yield statistically significant abnormal profit up to 2.2% per month,however, profitability decreases as holding period gets longer. Further analysisindicates that (1) time-varying market risk could be a source of contrarian profits,but not a major one; (2) Overreaction does not contribute to contrarian profits; (3)the lead-lag structure effect is mainly responsible for contrarian profits.Keywords: contrarian strategy, China “A” shares, overreaction, lead-lagstructure, decomposition model.
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