Price Momentum and Liquidity in Taiwan

• Main Authors: Wang Yi-Ching, 王怡靜
• Other Authors: Tsay Jiing-Tarng
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/59185440862695955094

碩士 === 國立清華大學 === 科技管理研究所 === 92 === Abstract This paper examines the interaction between price momentum and liquidity. The importance of liquidity to the capital market has long been recognized by academics and practitioners. This paper is aligned with Lee and Swaminathan (2000). We intend to demonstrate that the trading strategies followed by price momentum and liquidity could be powerful in explaining that The Momentum Expectation Life Cycle Hypothesis also exists in Taiwan stock market. This study is distinct from the previous research which claimed that their trading strategies still performed well when using the Fama and French (1993) three-factor model to explain. We introduce the concept of statistical arbitrage proposed by Hogan, Jarrow, Teo and Warachka (2003) to test if the Taiwan stock market exist price anomalies when using the trading strategies based on price momentum and liquidity. Statistical arbitrage is robust, because its existence is inconsistent with market efficiency. The empirical result shows that by using the trading strategies based on price momentum and liquidity, we can get the risk-less excess return in the long time. Besides, we find that it’s useful to take ’’price momentum strategy” in one month and “contrary strategy” over three months in Taiwan stock market. The reason might be investors in Taiwan are over-confidence and more sensitive, it will cause the price get to its fair value and over-react faster. The faster the price gets to its fair value, the sooner the price reverses. Keywords: Liquidity, Price momentum, Statistical arbitrage, The Momentum Expectation Life Cycle Hypothesis