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Revisiting the momentum effect in Taiwan: The role of persistency

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  • Chen, Hong-Yi
  • Hsieh, Chia-Hsun
  • Lee, Cheng-Few

Abstract

The Taiwan stock market has been widely documented as a remarkable exception to the momentum phenomenon. We show evidence that a high turnover rate exists for winner and loser portfolios, which in turn attenuates momentum profits in this market. Nevertheless, a persistency-based momentum strategy that involves buying persistent winners and short-selling persistent losers generates significant profits in the intermediate term, and thus claims a momentum effect for this market. Further analysis indicates that momentum persistency is positively associated with investors' heterogeneous beliefs. Finally, the persistency-based momentum strategy is robustly profitable for international markets, especially those without the momentum effect.

Suggested Citation

  • Chen, Hong-Yi & Hsieh, Chia-Hsun & Lee, Cheng-Few, 2023. "Revisiting the momentum effect in Taiwan: The role of persistency," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:pacfin:v:78:y:2023:i:c:s0927538x23000094
    DOI: 10.1016/j.pacfin.2023.101943
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    More about this item

    Keywords

    Momentum persistency; Underreaction; Heterogeneous beliefs; Taiwan stock market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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