Do momentum strategies perform better for Islamic stocks than for conventional stocks across market states?

This study compares the momentum profitability of Islamic and conventional stocks in Malaysia and examines whether the presence of momentum profits is market-state dependent. Winner portfolios are shown to outperform loser portfolios, suggesting that a momentum effect exists in the equity market. Islamic stocks exhibit stronger momentum than conventional stocks. Interestingly, although pursuing profit is not the primary goal of Islamic stock investors, the findings indicate that momentum profits for all Islamic stock trading strategies are higher than those for conventional stocks. The profits from momentum strategies for both stocks are market-state dependent. In all trading strategies, while there are significant positive momentum profits following market upturns, there is no evidence of profits subsequent to market downturns. Overall, Islamic stocks yield higher momentum profits than conventional stocks across market states. These findings are robust to using various measures of the state of the market. While the presence of momentum profits is also robust to the inclusion of Fama-French?s (1993) risk factors, the risk factors are unable to explain momentum profits, suggesting that the risk-adjusted momentum profits are not due to risk compensation. Rather, the profitability is evidence of stock mispricing.

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The Profitability of Momentum Strategies: Empirical Evidence from Damascus Securities Exchange (DSE)

International Journal of Business Economics and Management ◽

10.18488/journal.62.2018.51.16.29 ◽

2018 ◽

Vol 5 (1) ◽

pp. 16-29

Author(s):

Oubay Mahmoud ◽

Almougheer I Wardeh

Keyword(s):

Empirical Evidence ◽

Market Risk ◽

Trading Strategies ◽

Market Model ◽

Momentum Effect ◽

Momentum Strategy ◽

Momentum Strategies ◽

Monthly Data ◽

Contrarian Strategy ◽

Momentum Profits

The purpose of this study is to examine the profitability of Momentum based- trading strategies and investigate the causes of such profitability in Damascus Securities Exchange (DSE) market. The study analyzed 16 Momentum strategies based on full rebalancing and equally weighted techniques using monthly data from January 2010 to December 2016. The findings of the study showed low but significant Momentum effect, where the returns of Momentum portfolios were statistically positive only in 1 out of 16 strategies. Our findings suggest that Momentum strategy is applicable for winner portfolios whereas contrarian strategy is more appropriate for loser portfolios. We also adopted Market Model in order to investigate the possible risk-based explanations of Momentum profits, but we found that market risk is unable to explain the Momentum profitability in DSE market.

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Delisted stocks and momentum: Evidence from a new Australian dataset

Australian Journal of Management ◽

10.1177/0312896214565118 ◽

2016 ◽

Vol 42 (1) ◽

pp. 140-160 ◽

Cited By ~ 2

Author(s):

Thanh D Huynh ◽

Daniel R Smith

Keyword(s):

Trading Strategy ◽

Momentum Effect ◽

Momentum Strategies ◽

Momentum Profits ◽

Momentum Trading ◽

The Impact ◽

The U.S

We explore the impact of delisting on the performance of the momentum trading strategy in Australia. We employ a new dataset of hand-collected delisting returns for all Australian stocks and provide the first study outside the U.S. to jointly examine the effects of delisting and missing returns on the magnitude of momentum profits. In the sample of all stocks, we find that the profitability of momentum strategies depends crucially on the returns of delisted stocks, especially on bankrupt firms. In the sample of large stocks, however, the momentum effect remains strong after controlling for the effect of delisted stocks, in contrast to the U.S. evidence in which delisting returns can explain 40% of momentum profits. As these large stocks are less exposed to liquidity risks, the momentum effect in Australia is even more puzzling than in the U.S.

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Momentum anomaly: evidence from the Indian stock market

Journal of Advances in Management Research ◽

10.1108/jamr-11-2015-0081 ◽

2017 ◽

Vol 14 (1) ◽

pp. 3-22 ◽

Cited By ~ 4

Author(s):

Supriya Maheshwari ◽

Raj Singh Dhankar

Keyword(s):

Stock Market ◽

Trading Volume ◽

Investment Strategy ◽

Momentum Effect ◽

Momentum Strategies ◽

Content Type ◽

Momentum Profits ◽

The Usa ◽

Short Run ◽

Indian Stock Market

Purpose The purpose of this paper is to provide insights into the profitability of momentum strategies in the Indian stock market. This study further evaluates whether the momentum effect is a manifestation of size, value or an illiquidity effect. Design/methodology/approach Monthly stock return data of 470 BSE listed stocks over the sample period from January 1997 to March 2013 were used to create extreme portfolios (winner and loser). The returns of extreme portfolios were evaluated using t-statistics and a risk-adjusted measure. Further checks were imposed by controlling for other potential sources of risk including size, value and illiquidity. Findings The study provides support in favor of momentum profitability in the Indian stock market. In contrast to the literature, momentum profitability is driven by winning stocks, and hence, buying past winning stocks generates higher returns than shorting loosing stocks in the Indian stock market. Strong momentum profits were observed even after controlling for size, value and trading volume of stocks. This suggests that the momentum effect in the Indian stock market is not a manifestation of small size effect, value effect or an illiquidity effect. Practical implications From the practitioner’s perspective, the study indicates that a momentum-based investment strategy in the short run is still persistent and can generate potential profits in the Indian stock market. Originality/value There is little empirical evidence on the momentum profitability, especially in the Indian stock market. The study contributes toward the literature by analyzing the momentum profitability even after controlling for size, value and an illiquidity effect. Some aspects of the momentum effect were observed to be dissimilar from those observed in literature for the USA and other countries. Such findings justify the need for testing the momentum profitability in stock markets other than the USA.

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Can market state and market volatility explain time-varying momentum profits in South Africa?

International Journal of Emerging Markets ◽

10.1108/ijoem-03-2021-0406 ◽

2022 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Mwangele Kaluba ◽

Yudhvir Seetharam

Keyword(s):

South Africa ◽

Default Risk ◽

Explanatory Power ◽

Market Volatility ◽

Momentum Strategies ◽

Content Type ◽

Fund Managers ◽

Fundamental Factor ◽

Momentum Profits ◽

Market State

PurposeWhile the momentum anomaly is prevalent in South Africa, few have examined the reasons influencing it. This study examines whether momentum profits vary through time and are affected by the state of the market and market volatility between 1998 and 2019.Design/methodology/approachThe authors consider combinations of portfolio construction, such as the lookback period, weighting scheme, measure of volatility and the volatility window period. They further examine the interaction of momentum with sentiment, default risk and semi-deviation as a measure of risk, as a means of testing whether behavioural factors have significant influence.FindingsThe results generally show that neither volatility nor market state has explanatory power on momentum profits.Originality/valueThese results make the momentum anomaly in South Africa an even greater mystery than before as they do not conform to the existing literature from developed economies. The authors do, however, find that default risk is a significant predictor of momentum profits, which is a useful additional factor for those fund managers who utilise momentum strategies. This implies that a fundamental factor, default risk, is a potential explanation for the market-related momentum anomaly.

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Market Volatility and Momentum: Evidence from Pakistani Stock Exchange

Sukkur IBA Journal of Management and Business ◽

10.30537/sijmb.v4i1.105 ◽

2017 ◽

Vol 4 (1) ◽

pp. 82 ◽

Cited By ~ 1

Author(s):

Anila Rafique Khan ◽

Muhammad Waqas ◽

Arshad Hassan

Keyword(s):

Business Cycle ◽

Stock Exchange ◽

Statistical Significance ◽

Market Volatility ◽

Momentum Strategies ◽

Cross Sectional ◽

Momentum Profits ◽

Market State ◽

The Business Cycle ◽

The Impact

This study explores the relationship between market volatility and momentum profitability. This study indicates that market state volatility has significant power to forecast momentum payoffs, especially in negative market states. The results are the context in the presence of market state and business cycle variables. Market premium is significant and negative. Market volatility is also found negatively influencing momentum profits. Volatility is divided into volatility in the positive market and volatility in the negative market. Both are significantly and negatively influencing momentum profits. Vol+ and Vol- both have negative signs; Vol- is dominant in terms of the magnitudes of the coefficient and the t-statistics. Business cycle effect measured by term and yield is not found significant. Non-linearity has not been observed regarding the term. Results are found robust for market adjusted momentum payoff. The study also explores the impact of market state, volatility and business cycles on the return of loser and winner portfolio. This study reports that returns of the loser portfolios are explained by market component, whereas volatility is found to be insignificant. The macroeconomic variables TERM, TERM2 and YLD show signs of statistical significance. Market factor is significantly and positively influencing winner portfolios. The results indicate that volatile markets forecast low returns on winner stocks. Return dispersion used to measures cross-sectional is also found significant. The study recommends that investors should devise investment and momentum strategies on the basis of the volatility of stocks and the business cycle. The tests of this study show that volatile down markets forecast low momentum payoffs. The time-series predictability of momentum is asymmetric, which arises from loser stocks.

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Are Indian Investors Return Chasers? An Anatomy of their Trading Behavior

GIS Business ◽

10.26643/gis.v11i3.3435 ◽

2016 ◽

Vol 11 (3) ◽

pp. 32-44

Author(s):

Martin Bernard ◽

Malabika Deo

Keyword(s):

Equity Returns ◽

Trading Behavior ◽

Momentum Effect ◽

Momentum Strategy ◽

Price Momentum ◽

Momentum Profits ◽

Indian Context ◽

Time Period ◽

Monthly Return ◽

Indian Stock Market

Momentum has remained an unanswered anomaly in finance literature. Researchers have pointed out two arguments, whether the source of prior return anomalies are rational or behavioral. In this paper, we examined return chasing tendency investors and the profitability of probable price momentum strategy in Indian equity market using the monthly return data of equities represented in BSE-500 index encompassing the time period from July 2004 to Jun 2014. Study is an attempt to analyze momentum effect before, during and after the financial crisis of 2007–2009 to check whether investors continue to follow the same strategy during crisis or their behavior undergoes any change. Also study examined the adequacy of rational CAPM models to explain momentum profits. The result evidenced a strong presence of economically and statistically significant momentum profit in Indian stock market equity returns. Therefore return chasing tendency of Indian investors is found to be persistent in the intermediate horizon in Indian context. Closer observation of the results reveals that, Indian investors are winners chasers rather than investor in past losers. Study also confirmed that investors sentiments are volatile according to general market environment and inadequacy of rationalist equilibrium model to explain momentum profits.

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Rational Sources of Momentum Profits: Evidence from the Indian Equity Market

SSRN Electronic Journal ◽

10.2139/ssrn.873969 ◽

2006 ◽

Cited By ~ 1

Author(s):

Sanjay Sehgal

Keyword(s):

Equity Market ◽

Momentum Profits

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Risk-Managed Momentum: An Evidence from Indian Stock Market

FIIB Business Review ◽

10.1177/23197145211023001 ◽

2021 ◽

pp. 231971452110230

Author(s):

Simarjeet Singh ◽

Nidhi Walia ◽

Pradiptarathi Panda ◽

Sanjay Gupta

Keyword(s):

Stock Market ◽

Asset Management ◽

Stock Exchange ◽

Sharpe Ratio ◽

Relative Momentum ◽

Extended Time ◽

Momentum Strategies ◽

Momentum Profits ◽

Indian Stock Market ◽

Time Frames

Relative momentum strategies yield large and substantial profits in the Indian Stock Market. Nevertheless, relative momentum profits are negatively skewed and prone to occasional severe losses. By taking into consideration 450 stocks listed on the Bombay Stock Exchange, the present study predicts the timing of these huge momentum losses and proposes a simple risk-managed momentum approach to avoid these losses. The proposed risk-managed momentum approach not only doubles the adjusted Sharpe ratio but also results in significant improvements in downside risks. In contrast to relative momentum payoffs, risk-managed momentum payoffs remain substantial even in extended time frames. The study’s findings are particularly relevant for asset management companies, fund houses and financial academicians working in the area of asset anomalies.

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Can Economic Factors Improve Momentum Trading Strategies? The Case of Managed Futures during the COVID-19 Pandemic

Economies ◽

10.3390/economies9020086 ◽

2021 ◽

Vol 9 (2) ◽

pp. 86

Author(s):

Renata Guobužaitė ◽

Deimantė Teresienė

Keyword(s):

Financial Markets ◽

Risk Premium ◽

Trading Strategies ◽

Economic Factors ◽

Momentum Strategies ◽

New Approach ◽

Managed Futures ◽

Asset Classes ◽

Momentum Trading ◽

Insight Into

Systematic momentum trading is a prevalent risk premium strategy in different portfolios. This paper focuses on the performance of the managed futures strategy based on the momentum signal across different economic regimes, focusing on the COVID-19 pandemic period. COVID-19 had a solid but short-lived impact on financial markets, and therefore gives a unique insight into momentum strategies’ performance during such critical moments of market stress. We offer a new approach to implementing momentum strategies by adding macroeconomic variables to the model. We test a managed futures strategy’s performance with a well-diversified futures portfolio across different asset classes. The research concludes that constructing a portfolio based on academically/economically sound momentum signals with its allocation timing based on broader economic factors significantly improves managed futures strategies and adds significant diversification benefits to the investors’ portfolios.

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