Does short-term momentum exist in China?

Medhat and Schmeling (2022) find significant short-term reversal among low-turnover stocks and short-term momentum among high-turnover stocks by double sorting on stocks' previous month's return and share turnover. We replicate their research in the Chinese stock market and find that there is no short-term momentum but only short-term reversal exists in that market. A lack of volume that affects the ability of realized returns to predict firms' fundamentals or investor heterogeneity might cause the absence of short-term momentum in China.

Automated summary

Medhat and Schmeling (2022) find that low-turnover stocks exhibit significant short-term reversal, while high-turnover stocks show short-term momentum, based on double sorting on stocks' previous month's return and share turnover. We replicate their research in the Chinese stock market and find that there is only short-term reversal present, with no short-term momentum. This absence of short-term momentum in China may be attributed to a lack of trading volume, which affects the ability of realized returns to predict firms' fundamentals or investor heterogeneity.