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Investigating the Effect of Momentum Strategies on Investment Success in the Iran Stock Market

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Author Info

  • Mohammad Kazem Emadzade

    ()
    (University of Isfahan)

  • Amir Hossein Hosseini

    ()
    (University of Isfahan)

  • Mohammadali Shirazipour

    ()
    (Islamic Azad University)

  • Morteza Shokhmgar

    ()
    (University of Isfahan)

Registered author(s):

    Abstract

    One of the most challenging observations in the capital market is that in contrary to the work market hypothesis, the regular portfolio’s returns shows specific behaviors in different time periods and therefore it’s possible to acquire higher returns than the market by following the investment strategy compatible with the intended time horizon. George and Hwang (2004) show that a stock’s 52-week high price explains the momentum effect and that a strategy based on closeness to the 52- week high has better forecasting power for future returns than those strategies based on past returns. Cahan shows that absolute 52high price is better than 52high momentum for forecasting power for future. We demonstrate that the 52-week high and absolute 52high momentum strategies are robust in Iran Stock Market(ISM) over the period 2004–2008. Our sample exhibit statistically significant profits when implementing this 52-week high for 3, 6 and 12 month holding periods and 6 month holding period for absolute 52high momentum strategy. Then we measure its investment performance on the basis of the Fama and French 3-Factor to measure incremental performance. Our findings show that the 52-week high strategy generates significant, positive risk-adjusted returns within the framework of the Fama/French 3-Factor Model.

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    Bibliographic Info

    Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

    Volume (Year): 3 (2013)
    Issue (Month): 1 (January)
    Pages: 149-157

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    Handle: RePEc:hur:ijaraf:v:3:y:2013:i:1:p:149-157

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    Web page: http://hrmars.com/index.php/pages/detail/Accounting-Finance-Journal

    Related research

    Keywords: Momentum trading strategies; 52high Momentum strategy; absolute 52high momentum strategy; size;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    2. Thomas J. George & Chuan-Yang Hwang, 2004. "The 52-Week High and Momentum Investing," Journal of Finance, American Finance Association, vol. 59(5), pages 2145-2176, October.
    3. Allaudeen Hameed & Yuanto Kusnadi, 2002. "Momentum Strategies: Evidence from Pacific Basin Stock Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(3), pages 383-397.
    4. Copeland, Thomas E, 1976. "A Model of Asset Trading under the Assumption of Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 31(4), pages 1149-68, September.
    5. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, 02.
    6. Ben Marshall & Rachael Cahan, 2005. "Is the 52-week high momentum strategy profitable outside the US?," Applied Financial Economics, Taylor & Francis Journals, vol. 15(18), pages 1259-1267.
    7. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    8. Carlos Forner & Joaquín Marhuenda, 2003. "Contrarian and Momentum Strategies in the Spanish Stock Market," European Financial Management, European Financial Management Association, vol. 9(1), pages 67-88.
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