{"title":"Noisy market, machine learning and fundamental momentum","authors":"Tian Ma , Haoyun Sheng , Yuejie Wang","doi":"10.1016/j.pacfin.2024.102473","DOIUrl":null,"url":null,"abstract":"<div><p>We employ machine to learn the continuous fundamental information and elucidate the fundamental momentum in the noisy Chinese stock market. We extract fundamental implied component from realized returns and sort stocks with the trend of implied parts. The high-dimensional fundamental momentum significantly differentiates from its predecessor, yielding an annualized return of 13.8%. Underreaction in investors helps explain the strategy, as it generates stronger profit during periods of low investor sentiment and in subsamples with high idiosyncratic volatility. The retail investors in China are prone to distort the presentation of momentum. Fundamental momentum is robust in the U.S. samples, different training windows and alternative machine learning algorithms.</p></div>","PeriodicalId":48074,"journal":{"name":"Pacific-Basin Finance Journal","volume":null,"pages":null},"PeriodicalIF":4.8000,"publicationDate":"2024-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Pacific-Basin Finance Journal","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0927538X24002257","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We employ machine to learn the continuous fundamental information and elucidate the fundamental momentum in the noisy Chinese stock market. We extract fundamental implied component from realized returns and sort stocks with the trend of implied parts. The high-dimensional fundamental momentum significantly differentiates from its predecessor, yielding an annualized return of 13.8%. Underreaction in investors helps explain the strategy, as it generates stronger profit during periods of low investor sentiment and in subsamples with high idiosyncratic volatility. The retail investors in China are prone to distort the presentation of momentum. Fundamental momentum is robust in the U.S. samples, different training windows and alternative machine learning algorithms.
期刊介绍:
The Pacific-Basin Finance Journal is aimed at providing a specialized forum for the publication of academic research on capital markets of the Asia-Pacific countries. Primary emphasis will be placed on the highest quality empirical and theoretical research in the following areas: • Market Micro-structure; • Investment and Portfolio Management; • Theories of Market Equilibrium; • Valuation of Financial and Real Assets; • Behavior of Asset Prices in Financial Sectors; • Normative Theory of Financial Management; • Capital Markets of Development; • Market Mechanisms.