The momentum effect and the corresponding investors’ order submission strategies in the Taiwan stock market

Authors: Chaoshin Chiao, Ching-Hua Yu, Jing-Shiuan Chien

Journal: Chiao Da Management Review. Jun. 2008, 28(1): 131-168.

Keywords: Order submission strategy; Momentum effect; Momentum trader; Contrarian trader

Abstract:
The purpose of this paper is to inspect the existence of the momentum effect in the Taiwan stock market and analyze investors’ order submission strategies for both winner and loser stocks. This paper finds that, as the government opens the financial markets to foreign investors, the momentum effect gradually becomes more evident. The examination of order and execution data confirms that individuals tend to be contrarian traders and institutional traders tend to be momentum traders. Individual investors who buy loser stocks and sell winner stocks have the highest impact on stock prices. Individual and institutional investors are often more aggressive than other investors. Finally, when the market conditions change, their order submission strategies and trading consequences change accordingly.