Investment Horizons, Cash Flow News, and the Profitability of Momentum and Reversal Strategies in the Chinese Stock Market

Abstract This study investigates the profitability of momentum and reversal strategies of different investment horizons in the Chinese stock market. The findings indicate that momentum strategies are profitable for investment horizons less than one week. For longer investment horizons, reversal strategies are profitable. This result is very different from the US market, where profitable momentum strategies yield to much longer investment horizons. We show that this is because investors in China stock market generally overreact to the company cash flow news while investors in US market underreact to cash flow news.