Following momentum and avoiding the “Minsky Moment” evidence from investors on the Financial Instability Hypothesis
Abstract
Purpose
This study aims to find out how institutional investors use momentum in making investment decisions, and whether their actions are consistent with the Financial Instability Hypothesis of Hyman Minsky.
Design/methodology/approach
The study discusses the findings of interviews with 25 professional investors from the Hong Kong offices of five global financial institutions. All of the participants have several years of practical experience in global and regional markets.
Findings
Nearly all the managers interviewed said they use momentum in making investment decisions, and they do this in ways that are consistent with the Financial Instability Hypothesis, in which markets alternate between stable and unstable states. The participants are aware they may contribute to this, but they cannot avoid doing it because of short-term constraints in the present financial system.
Originality/value
This study adds to our knowledge of how professional investors use momentum in their investment strategies. It complements findings of quantitative studies that show momentum strategies have been profitable in many market settings. It also adds evidence that supports the Financial Instability Hypothesis.
Keywords
Acknowledgements
The authors wish to express their thanks to all the investors and investment companies who agreed to take part in this project. Their generous support made the research possible. This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.
Citation
Pirie, S. and Chan, R.K.T. (2016), "Following momentum and avoiding the “Minsky Moment” evidence from investors on the Financial Instability Hypothesis", Qualitative Research in Financial Markets, Vol. 8 No. 3, pp. 205-217. https://doi.org/10.1108/QRFM-08-2015-0034
Publisher
:Emerald Group Publishing Limited
Copyright © 2016, Emerald Group Publishing Limited