Characteristics of Turnover and “Disappeared” Momentum Effect in Chinese Stock Market

High turnover and retail investors are important characteristics of China’s stock market. Taking these two important characteristics as a new perspective, this paper discusses their impact on the monthly momentum effect of Chinese stock market. By constructing a trader model, this paper analyzes the influence of information transfer speed and stability reflecting the characteristics of turnover on the momentum effect. The empirical part constructs the total turnover days and the standard deviation of turnover rate which reflect the speed and stability of information transmission. Using the data from 1997 to 2020, it is pointed out that the faster the speed of information transmission and the worse the stability, the less significant the momentum effect is. Further analysis explores the impact of the investor structure which is the deep reason of turnover characteristics on the momentum effect. Both the theoretical and empirical results show that the lower the proportion of informed traders, the less significant the momentum effect is. The A-share market has abnormally high turnover, fast information transmission speed and poor stability. At the same time, there are many retail investors in the A-share market, so the momentum effect of A-share is not significant. This paper not only enriches the research of momentum effect, but also provides a new explanation for the insignificant monthly momentum effect in A-share market.