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Trimming Effects And Momentum Investing

Author

Listed:
  • H. W. Wayne Yang
  • Po-Wei Shen
  • An-Sing Chen

Abstract

This study tests the effects of outlier trimming (or truncation) on the performance of momentum portfolios. We test the hypothesis that outliers are essential and possess carry-over effects applicable to momentum investing. Our results support the hypothesis. We find momentum portfolios formed using untrimmed data produce higher returns than those formed using outlier trimmed data. Risk-adjusted results show the same results. Moreover, we find that the less the data are trimmed, the larger the resulting spread between the winner and loser portfolios formed from momentum. Finally, our results show that the trimming effect continues to exist even after distinguishing between UP and DOWN market states

Suggested Citation

  • H. W. Wayne Yang & Po-Wei Shen & An-Sing Chen, 2020. "Trimming Effects And Momentum Investing," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 14(2), pages 73-87.
    • Handle: RePEc:ibf:ijbfre:v:14:y:2020:i:2:p:73-87
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Trimming Level; Trading Strategies; Investment Strategies;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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