ارتباط بین 52 هفته برتر از سهام فردی و سطح شاخص بازار سهام: شواهد از تایوان

This paper examines the positive connection between the 52-week high of a stock price and its return. In addition, other reference points including 5-day high, 20-day high, and 60-day high are considered under different stock market index levels. Using firm characteristics as proxies of preference and risk, this study employs a panel model in Taiwan and found a stronger positive connection where the stock index is greater than the 52-week average, whereas a weaker positive relationship exists where the stock market index is below the 52-week average. The results imply that a conservative investor sentiment to rising stock prices exists when the stock market index is relatively low in comparison to the 52-week average.

52-week high is form of momentum strategy that investors structure their portfolios by buying winners and selling losers. George and Hwang (2004) find 52-week high strategy is more profitable than Jegadeesh and Titman (1993) price momentum. It is suggested that the price levels indicated by the 52-week high are a more important determinant of the momentum effect than that indicated by previous pricing trends. The investors regard the high price levels as an indicator of potential good news. Whether or not the news about the company is indeed “good” is invariably compared back to the stock's 52-week high. Thus, the stock's 52-week high is viewed as a reference point for investors predict their potential gains or losses. Other literature also agrees with the similar empirical results. Marshall and Cahan (2005) document evidence consistent with 52-week high momentum having a positive average monthly return in Australia. Research conducted by Du (2008) supports the view that the 52-week high is a critical factor in international stock prices. These empirical results are consistent with Huddart et al. (2009), who argued that past price extremes has influence over investor decisions. When good news leads to the stock price rising to a level close to the 52-week high, optimistic sentiment results, thereby enhancing the trend-tracking behavior and in turn improves the momentum effect or the 52-week high effect. This is because when the stock price approaches the 52-week high, there are two forces causing an increase in the potential future stock return. These two forces stem from the information effect of the rising price, and the positive sentiment accompanied by the rising price. However, the past research ignores that a high level of stock index may impede the 52-week high effect. If the relatively high prices of an individual stock could assist in identifying the largest potential short-term capital gains, it could be inferred that another important factor is the relatively high performance of the whole stock index. This paper concerns the appropriate timing for buying into and selling stocks in order to exploit the 52-week high effect in deriving profits. Information about the 52-week high is readily available from mass media and investors use the latest 52-week high as a benchmark for the current stock price. As individual investors are at an informational disadvantage, it is proposed that they tend to follow stock trends more so than institutional investors. DeBondt (1993) and Brown and Cliff (2004) argued that there are stronger corresponding movements between individual investors and stock returns. Previous literature has mentioned that the under-reaction of investors to new information arriving and slowness to revise their prior information result in price momentum profits (e.g., Barberis et al., 1998, Daniel et al., 1998 and Hong and Stein, 1999). Taiwan stock market provides a good example for the purposes of this research as the proportion of individuals participating in the market is more than half of the total market participants. Domestic and individual investors constituted 60.21% of all Taiwan stock market participants in 2007 and 63.92% in 2008. In addition, Taiwan market this study discusses is interesting as it provides a typical example in emerging markets. In detail, four major sets of research concerns to be addressed in this paper are as follows. Firstly, it is necessary to consider how the level of the stock index affects the 52-week high of individual stock through investor sentiments. Potential good news resulting from a well performing stock index generates promising prospects for an individual stock. This in turn motivates investors to trace the past trends of individual stocks, as investors expect rising prices in the future from a bullish market. It is thus suggested that a higher stock index level should lead to the improved performance of the individual stock. By the contrast, a bearish market or a low stock index level may sap investor confidence in holding onto stocks. This paper will identify how the stock index level affects the connection between the 52-week high and stock returns. Secondly, apart from using the 52-week high as reference point, this paper attempts to discover whether other possible forms of important information exist, which can also be adopted as a reference point by investors. Where the 52-week high is used as a reference point, it is proposed that similar manifestations of past high price points measured at different periods should also be used as reference points, such as the weekly (5-day), monthly (20-day) or seasonal highs (60-day). Those benchmarks may also be used as a comparison to the current price. However, very few studies have attempted to understand the relationship between stock returns and such benchmarks. Thirdly, the heteroscedasticity of an individual company should be considered in the model proposed. Conard and Kaul (1998) noted that momentum profits can be attributed to cross-sectional variation in the expected returns of stocks rather than to the predictable time-series variation. Furthermore, Moskowitz and Grinblatt (1999) argued the industry risk factors can adequately explain the derivation of momentum profits. Similarly, Grundy and Martin (2001) suggested that the stock-specific return component explains the profitability of the momentum strategy. Momentum profits are thus the compensation for the risk assumed by investors in which the cross-sectional differences are reflected in the variations in the expected returns of stocks. Few papers have mentioned or examined the direct connection between the 52-week high effect and cross-sectional variation, even though the connection between the price momentum effect and cross-sectional variation has been observed. Thus, the cross-sectional variation should be included in the proposed models in the discussion of the 52-week high effect. This paper includes the most common firm characteristics mentioned by past literature as proxies of preference and risk: firm size and book-to-market (B/M) ratio. While some researchers agree that size is a critical factor in determining the expectations for stock returns (e.g., Banz, 1981, Reinganum, 1981, Jaffe et al., 1989 and Rouwenhorst, 1998), others believe the value effect to be an even more important factor, (e.g., Rosenberg et al., 1985, Chan et al., 1991, Capual et al., 1993, Piotroski, 2000 and Chan and Lakonishok, 2004), with some even arguing that both of these effects should not be ignored in such an analysis (e.g., Fama and French, 1992, Fama and French, 1996, Barber and Lyon, 1997, Bauman et al., 1998 and Daniel et al., 2001). Lewellen (2002) supports the view that both size and B/M portfolios exhibit the momentum effect as strongly as that of individual stocks and its industries. In this paper, we allow that both the effects of firm characteristics and the 52-week high effect exist and include the main firm characteristics including firm size and B/M, in order to predict the expected return of individual stocks. Besides the firm size and B/M, the price-to-earnings (PE) ratio which represents the earnings yield effect is also emphasized by past literature. Although Reinganum (1981) argued that the PE effect fails to emerge after returns are controlled for the firm size effect, Basu's (1983) research supported the view that the PE effect is not independent of firm size. Cook and Rozeff (1984), Jaffe et al. (1989), and Fairfield and Harris (2010) agreed the stocks with low PE ratios generate higher returns. As the earnings variable has an important and fundamental effect on the analysis of the stock price effects, the PE ratio is included in our model. Another important reference point which investors employ to evaluate the arrival of news is the traded volume. Investors are generally provided information relating to trading volume through observing past price and volume trends (Blume et al., 1994). Huddart et al. (2009) demonstrated that the volume is strikingly higher where the stock price exceeds either the upper or lower limit of its past trading range. In this paper, we employ two alternative measures of volume, that is, the trading volume and order imbalance. The order imbalance results where buy orders greatly outnumber sell orders. In this way, the order imbalance is a source of important information as it provides more information than trading volume in relation to liquidity and market activity, especially since it provides an indication of the stocks’ potential movement in terms of being in a positive or negative direction. Where a positive order imbalance occurs, that is buying orders outnumber selling orders, investors will analyze the situation as relatively safe for entering the market. In contrast, in the case of a negative order imbalance, the selling of existing holdings seems to be a prudent and safe investment strategy. Where the order imbalance of an individual stock is positive (negative), traders will adjust their expectations regarding stock returns, pushing the price upwards (downwards). Finally, the panel regression model this paper adopted has the advantage of demonstrating the mean behavior of variables, including the individual effect on a stock. Much of the prior research on the relationship between the 52-week high and the individual stock return has employed momentum strategies. Furthermore, to our knowledge, none have examined the pooling regression method or the panel regression model. After controlling for firm characteristics in panel model, this paper concludes that the 52-week high has a positive correlation to individual stock return. In contrast, where the stock market index is lower than the average price over the past 52 weeks, there is a weaker positive correlation between the 52-week high of an individual stock and its return. The remainder of this paper is organized as follows. Section 2 describes the data and the methodology. Section 3 presents the empirical results, and Section 4 presents the paper's conclusions.

This paper has shown that the 52-week high has a significant, positive effect on stock return, suggesting that investor sentiment plays an important role in the investment decision where the current stock market index approaches the historical high prices of the stock. The positive relationship between the 52-week high and stock return was measured in this paper using the panel model. The panel model avoids the problems encountered in past research which have placed excessive focus on the distinction between stocks considered “winners” and those considered “losers” in a stock portfolios in relation to the momentum effect, and improves the pooling regression model by considering the individual effect of the stock. In addition, this paper discusses the relationship between the 52-week high and stock return under different stock index levels, addressing the market conditions that potentially affect the estimation of the relationship between stock return and the 52-week high. We found that there is a possibility of conservative investor sentiment where a bear market or a lower stock market index level exists. Thus, where an individual stock reaches its past high price when the stock market index level is relatively low, this may affect the investor's investment decision. This paper examines the investing attitudes of the 52-week high price of individual stocks under both a lower and higher stock market index level. An expectation that the stock's price will rise or that greater potential profits may result induces the investor to wait for the stock price to meet their expectations, and is more likely to occur where there is a higher stock market index level. The same expectation also affects stock return in the opposite direction where the stock market index level is lower. As discussed previously, the 52-week high has a negative effect on return when the stock market index level is relatively low compared to its average over the past 52 weeks. However, the relationship between the 52-week high and stock return remains positive, albeit weaker. This finding is important as the positive relationship between the 52-week high and stock return has been mentioned in previous research without considering the stock market index levels. Similarly, the 5-day, 20-day, and 60-day high also appear to be considered as reference points by investors and have the same impact on stock returns. Literature in the past has argued that investors react relatively slower to good news than to the bad news implied by lower stock market index levels (e.g., Barberis et al., 1998, Daniel et al., 1998, Hong and Stein, 1999 and George and Hwang, 2004). The implication of the past low price has not been emphasized by literature and consequently is absent in this paper. The 52-week high variable is a key factor affecting the investment decision. However, our research also found support for the view that firm characteristics represent investors’ preferences and are proxies of unobserved risk. We agree with Brav and Heaton's (2002) view that even if the investor's irrational behavior generates financial anomalies, irrational investors will still learn and decline to accept that they have adopted an irrational decision. The factors affecting the investment decision are complex and it is difficult to say with certainty whether or not one theory provides a complete and accurate explanation for the situation.