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The Profitability of Momentum Investing

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Author Info
Weimin Lui (University of Exeter,)
Norman Strong
Xinzhong Xu

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Abstract

We test for the presence of momentum profits in the UK over the period 1977 to 1998. The analysis shows that significant momentum profits are present in both a comprehensive sample of UK stocks and an accounting sub-sample. An analysis of sub-period results, seasonal effects, and the persistence of momentum profits confirms the robustness of the results. Controlling for factors known to be associated with differences in average returns, such as size, stock price, book-to-market ratio, and cash earnings-to-price ratio, cannot explain momentum profits. We also confirm that serial correlation in common factors and delayed price reaction to common factor realisations cannot explain momentum profits. We conclude that the momentum effect derives from market underreaction to either industry- or firm-specific information and it is a significant, independent phenomenon in UK stock returns. Copyright Blackwell Publishers Ltd 1999.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1468-5957.00286
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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Business Finance & Accounting.

Volume (Year): 26 (1999-11)
Issue (Month): 9-10 ()
Pages: 1043-1091
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Handle: RePEc:bla:jbfnac:v:26:y:1999-11:i:9-10:p:1043-1091

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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  1. Glaser, Markus & Weber, Martin, 2002. "Momentum and Turnover: Evidence from the German Stock Market," Sonderforschungsbereich 504 Publications 02-43, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Patricia Fraser & Martin Hoesli & Lynn McAlevey, 2008. "House Prices and Bubbles in New Zealand," The Journal of Real Estate Finance and Economics, Springer, vol. 37(1), pages 71-91, July. [Downloadable!] (restricted)
  3. Glaser, Markus & Weber, Martin, 2002. "Momentum and Turnover: Evidence from the German Stock Market," CEPR Discussion Papers 3353, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  4. Jonathan Fletcher & David Forbes, 2002. "U.K. Unit Trust Performance: Does it Matter Which Benchmark or Measure is Used?," Journal of Financial Services Research, Springer, vol. 21(3), pages 195-218, June. [Downloadable!] (restricted)
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