Stock Reverse Trading Strategy and Its Effectiveness Test based on Prospect Theory

Abstract

Abstract: Aiming at the limitation of stock investment “momentum strategy” in the application of China′s stock market due to the irrationality of investors, a new “anchoring disposal” stock reverse trading strategy is constructed based on the prospect theory of behavioral finance.The empirical results show that the strategy can achieve significant positive returns in the short term, medium term and long term, which confirms the universal existence of the reversal effect of China′s stock market; the strategy has higher returns than the traditional momentum trading strategy, and the return after deducting the transaction costs is still higher than the market return.

Key words: reversal trading strategy, prospect theory, anchoring effect, disposition effect, effectiveness

CHEN Zhi-ying1, CHEN Miao-zhen2, XU Lin2. Stock Reverse Trading Strategy and Its Effectiveness Test based on Prospect Theory [J]. 商业研究.

References

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