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Article
Publication date: 9 January 2024

Kun Wang and Xu Wu

As the world's largest emerging market, the evidence of momentum effect in China is also mixed. Meanwhile, prior studies mainly examined individual stock momentum in China, with…

Abstract

Purpose

As the world's largest emerging market, the evidence of momentum effect in China is also mixed. Meanwhile, prior studies mainly examined individual stock momentum in China, with little concern for industry momentum and its relationship with trading volume. The motivation of this study is to investigate industry momentum in China and examine whether trading volume can enhance its profitability.

Design/methodology/approach

Firstly, the authors test the existence of industry momentum in China; secondly, the authors test the correlation between trading volume and momentum returns using the double ranking method; finally, the authors test whether trading volume enhances the momentum returns using Fama–French five-factor model.

Findings

The authors find that there is a significant industry momentum effect in China, and the momentum returns jointly come from winner and loser portfolios. The intervals between the formation and holding periods have an impact on the performance of momentum portfolios. In terms of trading volume, the authors find that high-volume industries have industry momentum effects while low-volume industries do not. The industry momentum strategies achieve higher excess returns in high-volume industries.

Practical implications

Prior literature found higher momentum returns in low-volume stocks in China, but the research in this study suggests that implementing an industry momentum strategy in low-volume industries will miss out on higher returns or even bring losses, and instead the investors should invest in high-volume industries to get the best performance.

Originality/value

This study extends existing research by focusing on industry momentum and its relationship with trading volume in the Chinese stock market and finds an interesting relationship between industry momentum returns and trading volume, which is different from related studies.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 19 December 2016

Bob Li, Mong Shan Ee, Yee Ling Boo and Mamunur Rashid

Ever since the publication of the original Jegadeesh and Titman (1993) study, momentum effect has been tested vigorously to validate its pervasiveness for different time periods…

Abstract

Purpose

Ever since the publication of the original Jegadeesh and Titman (1993) study, momentum effect has been tested vigorously to validate its pervasiveness for different time periods and across different markets. In spite of numerous out-of-sample tests, there is one apparent alibi – little research has been devised for steady increasing of Shari’ah compliant stocks.

Methodology/approach

This study is to examine the momentum strategy returns in a global Shari’ah compliant stock setting.

Findings

It finds strong presence of stock momentum returns for Pakistan and Malaysia. And the momentum returns are neither driven by industry momentum nor by the small size stocks. Though no momentum profits are found for the portfolios formed by global Shari’ah compliant stocks, this seems to be largely due to return reversal for the small size Shari’ah compliant stocks.

Originality/value

The strong presence of momentum profits for relatively large Shari’ah compliant stocks is a desirable trait as it indicates that the momentum trading strategies are practical and implementable.

Details

Advances in Islamic Finance, Marketing, and Management
Type: Book
ISBN: 978-1-78635-899-8

Keywords

Article
Publication date: 19 June 2018

Chun-Da Chen and Riza Demirer

The purpose of this paper is to show that the level of herding in an industry can be the basis for a profitable investment strategy.

Abstract

Purpose

The purpose of this paper is to show that the level of herding in an industry can be the basis for a profitable investment strategy.

Design/methodology/approach

The authors apply three different herding measures in the paper, including cross-sectional standard deviation, cross-sectional absolute deviation and non-linear model – state–space model.

Findings

The authors find that industries that experience a high level of herding yield higher subsequent returns regardless of their past performance. Consequently, the authors show that a herding-based investment strategy generates significant profits, even after adjusting for risk. The findings also show that the herding effect when combined with past performance as part of a conditional investment strategy yields significant profits regardless of the formation and holding periods. The findings suggest that the level of herding could serve as a systematic driver of returns and could be exploited for profitable investment strategies.

Originality/value

To the best of authors’ knowledge, this is the first study in the literature to show that herding by itself can serve as a determinant of returns regardless of past performance.

Details

Managerial Finance, vol. 44 no. 7
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 14 September 2021

Daniel Folkinshteyn and Jordan Moore

Momentum strategies exhibit quarterly seasonality, earning significantly higher average strategy returns in the third month of the quarter than the first month. The authors…

Abstract

Purpose

Momentum strategies exhibit quarterly seasonality, earning significantly higher average strategy returns in the third month of the quarter than the first month. The authors evaluate the magnitude of quarterly seasonality in various momentum strategies to examine the relation between quarterly seasonality and risk-adjusted monthly returns.

Design/methodology/approach

The authors construct long-short portfolios for various types of momentum strategies and calculate the average returns of these portfolios in the three months of the quarter. They also calculate the average changes in institutional ownership across the different portfolios.

Findings

The authors demonstrate that quarterly seasonality is directly associated with quarterly changes in net purchases by institutional investors. Additionally, they show that near-term price momentum exhibits more seasonality than other momentum strategies, consistent with institutional investor incentives.

Research limitations/implications

Researchers studying momentum should understand that quarterly seasonality increases the standard deviation of monthly returns for different types of momentum strategies.

Practical implications

Individual investors and investment managers should consider whether it is early or late in the calendar quarter when implementing momentum strategies.

Originality/value

Quarterly seasonality explains several seemingly independent findings in the momentum literature. In cases where researchers show one momentum strategy outperforms another on a risk-adjusted basis, the authors find that the superior strategy exhibits less quarterly seasonality. This pattern holds across types of momentum strategies, strategy formation periods and asset classes.

Article
Publication date: 29 July 2014

Sanjay Sehgal and Sakshi Jain

– The purpose of this paper is to analyze long-term prior return patterns in stock returns for India.

Abstract

Purpose

The purpose of this paper is to analyze long-term prior return patterns in stock returns for India.

Design/methodology/approach

The methodology involves portfolio generation based on company characteristics and long-term prior return (24-60 months). The characteristic sorted portfolios are then regressed on risk factors using one factor (capital asset pricing model (CAPM)) and multi-factor model (Fama-French (FF) model and four factor model involving three FF factors and an additional sectoral momentum factor).

Findings

After controlling for short-term momentum (up to 12 months) as documented by Sehgal and Jain (2011), the authors observe that weak reversals emerge for the sample stocks. The risk model CAPM fails to account for these long-run prior return patterns. FF three-factor model is able to explain long-term prior return patterns in stock returns with the exception of 36-12-12 strategy. The value factor plays an important role while the size factor does not explain cross-section of average returns. Momentum patterns exist in long-term sector returns, which are stronger for long-term portfolio formation periods. Further, the authors construct sector factor and observe that prior returns patterns in stock returns are partially absorbed by this factor.

Research limitations/implications

The findings are relevant for investment analysts and portfolio managers who are continuously tracking global markets, including India, in pursuit of extra normal returns.

Originality/value

The study contributes to the asset pricing and behavioral literature from emerging markets.

Details

Journal of Advances in Management Research, vol. 11 no. 2
Type: Research Article
ISSN: 0972-7981

Keywords

Article
Publication date: 13 January 2012

Valeed Ahmad Ansari and Soha Khan

This paper aims to examine the presence of momentum profit in the Indian stock market and seeks to explore the sources of momentum profit employing both risk based and behavioral…

2282

Abstract

Purpose

This paper aims to examine the presence of momentum profit in the Indian stock market and seeks to explore the sources of momentum profit employing both risk based and behavioral models. R2, idiosyncratic volatility, and delay measures are employed in order to test behavioral models.

Design/methodology/approach

The paper follows Jegadeesh and Timan's methodology in constructing momentum portfolios.

Findings

The study finds strong presence of momentum profits in India during 1995‐2006. The risk based models such as CAPM and Fama‐French fail to account for the phenomenon. Idiosyncratic risk exhibits a positive relation with momentum, lending support to behavioural factors as source of momentum phenomenon.

Practical implications

In forming portfolios, selecting the stocks which have been winners in the last three and six months can help investors and fund mangers earn substantial profit.

Originality/value

The study employs behavioral variables to explain the momentum phenomenon. In the Indian context it is an unexplored area.

Details

Managerial Finance, vol. 38 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 11 August 2016

Knut F. Lindaas and Prodosh Simlai

We examine the incremental cross-sectional role of several common risk factors related to size, book-to-market, and momentum in size-and-momentum-sorted portfolios. Unlike the…

Abstract

We examine the incremental cross-sectional role of several common risk factors related to size, book-to-market, and momentum in size-and-momentum-sorted portfolios. Unlike the existing literature, which focuses on the conditional mean specification only, we evaluate the common risk factors’ incremental explanatory power in the cross-sectional characterization of both average return and conditional volatility. We also investigate the role of ex-ante market risk in the cross-section. The empirical results demonstrate that the size-and-momentum-based risk factors explain a significant portion of the cross-sectional average returns and cross-sectional conditional volatility of the benchmark equity portfolios. We find that the Fama–French (1993) factors and the ex-ante market risk are priced in the cross-sectional conditional volatility. We conclude that the size-and-momentum-based factors provide a source of risk that is independent of the Fama–French factors as well as ex-post and ex-ante market risk. Our results bolster the risk-based explanation of the size and momentum effects.

Details

The Spread of Financial Sophistication through Emerging Markets Worldwide
Type: Book
ISBN: 978-1-78635-155-5

Keywords

Article
Publication date: 29 April 2021

Simarjeet Singh, Nidhi Walia, Sivagandhi Saravanan, Preeti Jain, Avtar Singh and Jinesh jain

This study aims to recognize the current dynamics, prolific contributors and salient trends and propose future research directions in the area of alternative momentum investing.

Abstract

Purpose

This study aims to recognize the current dynamics, prolific contributors and salient trends and propose future research directions in the area of alternative momentum investing.

Design/methodology/approach

The study uses a blend of electronic database and forward reference searching to ensure the incorporation of all the significant studies. With the help of the Scopus database, the present study retrieves 122 research papers published from 1999 to 2020.

Findings

The results reveal that alternative momentum investing is an emerging area in the field of momentum investing. However, this area has witnessed an exponential growth in last ten years. The study also finds that North American, West European and East Asian countries dominate in total research publications. Through network citation analysis, the study identifies five major clusters: industrial momentum, earnings momentum, 52-week high momentum, time-series momentum and risk-managed momentum.

Research limitations/implications

The present review will serve as a guide for financial researchers who intend to work on alternative momentum approaches. The study proposes several unexplored research themes in alternative momentum investing on which future studies can focus.

Originality/value

The study embellishes the existing literature on momentum investing by contributing the first bibliometric review on alternative momentum approaches.

Details

Journal of Economic and Administrative Sciences, vol. 38 no. 4
Type: Research Article
ISSN: 1026-4116

Keywords

Content available
Book part
Publication date: 19 December 2016

Abstract

Details

Advances in Islamic Finance, Marketing, and Management
Type: Book
ISBN: 978-1-78635-899-8

Article
Publication date: 7 August 2017

Alexandre Carneiro and Ricardo Leal

The purpose of this paper is to contrast three investment choices within the reach of individual investors: naive portfolios of Brazilian stocks; actively managed stock funds; and…

Abstract

Purpose

The purpose of this paper is to contrast three investment choices within the reach of individual investors: naive portfolios of Brazilian stocks; actively managed stock funds; and the Ibovespa index, which represents passive management as well as to offer insights on the performance of professional asset managers in this large emerging market.

Design/methodology/approach

Equally weighted portfolios contained between 5 and 30 stocks to keep transaction costs low. Stock selection used the Ibovespa constituents and considered value (dividend yield (DY) and price-to-book ratio), momentum (past returns), and liquidity, as well as the Sharpe ratio (SR) over the 2003-2012 period, rebalancing three times a year.

Findings

Cumulative returns of naive portfolios are large. They frequently outperform the index for all values of n. They also outperform stock funds, particularly when the invested amount exceeds US$25,000, due to transaction costs. Yet, expected out-of-sample SRs corrected for errors in estimates are very low, suggesting that one should not count on this historical performance in the future. Naive portfolios may simply be more exposed to additional value, size, and momentum risks. Results are sensitive to time period selection.

Practical implications

Naive portfolios may be attractive to individual investors in Brazil relative to stock funds, which seem to strive to keep volatility low and may be better when the investment amount is low. There may be merit for value or momentum stock selection strategies when forming small equally weighted portfolios.

Originality/value

The paper contrasts realistic stock investing alternatives for individuals, it provides a view of stock fund performance in Brazil, and offers practical implications that may be pertinent in other emerging stock markets.

Objetivo

Contrastar três opções de investimento ao alcance de investidores individuais: carteiras ingênuas de ações brasileiras; fundos de ações de gestão ativa; e o índice Ibovespa, que representa a gestão passiva. Oferecer informações sobre o desempenho de gestores de ativos profissionais neste grande mercado emergente.

Método

As carteiras igualmente ponderadas continham entre 5 e 30 ações para manter os custos de transação baixos. A seleção de ações utilizou os componentes do Ibovespa e considerou o valor (rendimento de dividendos e relação preço/valor patrimonial), momentum (retornos passados) e liquidez, bem como o Índice de Sharpe no período 2003-2012, rebalanceando três vezes ao ano.

Resultados

Os retornos acumulados de carteiras ingênuas são grandes. Eles frequentemente superam o índice para todos os valores de N. Eles também superam os fundos de ações, particularmente quando o montante investido excede US$ 25,000, devido aos custos de transação. Contudo, os Índices de Sharpe esperados fora de amostra corrigidos por erros nas estimativas são muito baixos, sugerindo que não se deve contar com este desempenho histórico no futuro. As carteiras ingênuas podem simplesmente estar mais expostas a fatores riscos adicionais, tal como os de valor, tamanho e momentum. Os resultados são sensíveis à seleção do período de tempo.

Implicações práticas

As carteiras ingênuas podem ser atrativas para os investidores individuais no Brasil em relação aos fundos de ações, que parecem se esforçar para manter a volatilidade baixa e podem ser melhores quando o valor do investimento é baixo. Pode haver mérito para estratégias de seleção de ações de valor ou momentum ao formar carteiras igualmente ponderadas pequenas.

Originalidade/valor

O artigo contrasta alternativas realistas de investimento em ações para indivíduos, oferece uma visão do desempenho dos fundos de ações no Brasil e oferece implicações práticas que podem ser pertinentes em outros mercados emergentes.

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