Information Uncertainty and Momentum Phenomenon Amidst Market Swings: Evidence From the Chinese Class A Share Market

Abstract

This paper empirically investigates how firm-level information uncertainty impacts momentum profits in the Chinese Class A share market. We employ seven different factors to gauge the degree of firm-level information uncertainty—firm size, firm age, analysts’ coverage, return volatility, dispersion in analysts’ earnings forecast, trading volume, and the quality/strength of corporate governance (free float ratio). We find evidence showing that information uncertainty has an amplifying effect over the momentum profits, and the amplifying effect is more pronounced over the time periods following DOWN market state over the sample period from January 1996 to December 2013. The robustness of the empirical evidence is warranted by a risk-adjustment test based on the FF3F model and Wang and Xu’s (Financ Anal J 60(6):65–77, 2004) FF3F model, a sub-period analysis, and a different definition of market states. The empirical findings can provide an important reference point for international and domestic investors when adjusting investment strategies and portfolio positions in relatively volatile financial markets such as the Chinese stock market.