Year: 2025
Type: article
Abstract: China’s Hang Seng Index (HSI) represents the mature market, and its Shanghai Stock Exchange Composite Index (SSE), the emerging market. I utilize six market timing (MT) methods and one dollar cost average (DCA) method to invest in the two stock indexes respectively. It is assumed that investors make a series of monthly cash contributions to an equity index in the long term. They do not possess lump-sum cash and cannot borrow cash. They buy and hold equity till the end of an investment period. The DCA method is simple, and it is to invest every monthly cash contribution immediately in an equity index. The six MT methods are complicated, and they are to invest more (less) than the monthly cash contribution, under the cash constraint, if the equity price has declined (risen). Empirical tests have been conducted for the 5-year, 10-year, and 20-year rolling investments during 1991-2022. My findings show that for both the HSI and SSE, the net returns generated by the six MTs are similar to those created by the DCA. In addition, the differences (MT-DCA) in the average monthly returns and modified Sharpe ratios are either statistically insignificant or negative and significant. Therefore, regardless the differences between the Hong Kong and mainland China markets, the complicated MTs do not outperform the simple CA in China’s mature and emerging stock indexes.
Author: Yan He
Institution: Indiana University Southeast
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4408103335