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The profitability of momentum trading strategies: Empirical evidence from Hong Kong

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  • Cheng, Joseph W.
  • Wu, Hiu-fung
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    Abstract

    This paper investigates whether momentum trading strategies are profitable in the Hong Kong stock market, and examines the sources of such profitability. Momentum portfolios are significantly profitable in the intermediate term in Hong Kong, but the profits become insignificant after risk adjustment by the Chordia and Shivakumar (2001) model. The stock-specific return strategy and factor-related return strategy are analyzed to examine which portion of the total return causes stocks to enter extreme portfolios. The Chordia and Shivakumar factor-related return strategy obtains profits with a magnitude that is close to that which is attained by the total return momentum strategy. Additional evidence further supports the view that the Chordia and Shivakumar model captures momentum profits.

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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 4 (October)
    Pages: 527-538

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:527-538

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: Momentum trading Stock-specific return strategy Factor-related return strategy Risk-adjusted return Hong Kong stock market;

    References

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    1. Harrison Hong & Jeremy C. Stein, 1997. "A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets," NBER Working Papers 6324, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Bianconi, Marcelo & Yoshino, Joe A., 2012. "Firm Market Performance and Volatility in a National Real Estate Sector," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 230-253.
    2. Wei, J.R. & Huang, J.P. & Hui, P.M., 2013. "An agent-based model of stock markets incorporating momentum investors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(12), pages 2728-2735.
    3. Kao, Erin H., 2011. "Momentum and reversals in Taiwan index futures returns during periods of extreme trading imbalance," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 459-467, June.
    4. Alwathainani, Abdulaziz M., 2012. "Consistent winners and losers," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 210-220.

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